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Foreign Investors Sell Asian Bonds in April Amid Strong Dollar and Fed Uncertainty

For the second consecutive month in April, foreign investors found themselves as net sellers of Asian bonds, influenced by a robust U.S. dollar and uncertainties revolving around the Federal Reserve’s interest rate policies, which subdued investor appetite.

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A total of $1.91 billion in bonds from Indonesia, India, Thailand, Malaysia, and South Korea were offloaded by investors, although this figure marked a significant decrease from the $4.69 billion divested in March.

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The dollar index surged to a 5-1/2 month peak, reaching as high as 106.51 last month, concluding the period with a 1.76% increase, its most substantial gain in three months.

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Indonesian bonds witnessed an outflow of approximately $1.7 billion, extending a streak of three consecutive months of withdrawals, coinciding with the rupiah’s decline to a four-year low. This situation prompted Bank Indonesia to unexpectedly raise interest rates.

In India, investors withdrew $1.31 billion from bonds, halting a year-long trend of purchasing.

Thailand saw a continued outflow for the fifth consecutive month, totaling about $881 million.

On the flip side, South Korean and Malaysian bonds managed to attract foreign capital, with $1.86 billion and $122 million worth of investments, respectively.

However, the dollar’s strength waned in the current month after the Federal Reserve maintained interest rates, while concerns about the overheating of the U.S. economy were tempered by a weaker-than-expected U.S. non-farm payrolls report and CPI data for April.

Khoon Goh, head of Asia Research at ANZ, commented, “While tensions in the Middle East have subsided and the U.S. Federal Reserve is still expected to reduce rates at some stage, the level of uncertainty is higher than normal.”

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