Foreigners were net buyers of Asian bonds for a third straight month in July as falling interest rates and anxiety over the Sino-US trade dispute lifted demand for regional debt securities offering higher yields and less risk than equities. Last month, foreigners bought a net $3.43 billion of Asian bonds, data from regional banks and bond market associations in Indonesia, Malaysia, Thailand, South Korea and India showed.

India and Indonesia - the markets with the region's highest bond yields - together attracted $3.1 billion in inflows in July, the data showed. Indonesia was the top recipient, with $1.73 billion, while India received $1.37 billion. Malaysia bonds drew about $1.4 billion in inflows. Thailand, which had net inflows of $1.77 billion in June, saw an outflow of $710 million last month.

The truce in the US-China trade dispute that prevailed in July, plus a rate cut by US Federal Reserve, boosted flows into Asian bond markets in July. "With global bond yields falling and safe-haven demand increasing, Asian bonds should still attract some foreign demand," said Khoon Goh, head of Asia research at ANZ Research in an August 12 note. "But equities look likely to bear the brunt of foreign selling, as a trade deal between the US and China looks unlikely and the region's export outlook remains poor."

Copyright Reuters, 2019