Foreigners Pull $7.57 Billion From Asian Bonds as US-Iran Conflict Fires Up Oil

Asian bonds recorded their largest monthly foreign outflows in four years in March as disruptions to oil and gas supplies from the Middle East conflict fueled inflation concerns, weighing on demand for fixed-income assets.

Investors pulled a net $7.57 billion from regional bonds in South Korea, Thailand, Malaysia, India and Indonesia last month, marking the largest monthly outflows since March 2022, according to data from local regulators and bond market associations.

"Investors are paring bond positions on worries that the inflation outlook is reducing the attractiveness of holding long-duration assets," said Khoon Goh, head of Asia research at ANZ.

Brent crude futures rose about 5.4% to $95.29 a barrel on Monday on concerns that a ceasefire between the United States and Iran may not hold, after Washington said it had seized an Iranian cargo ship that attempted to breach its blockade and Tehran vowed retaliation.

"The longer energy prices remain elevated and the Strait (of Hormuz) is constrained, the greater the chances that higher inflation gets embedded across a wide variety of goods and services," said Federal Reserve Governor Christopher Waller on Friday.

South Korean bonds faced a net $7.25 billion foreign outflow last month as worries over rising oil prices outweighed optimism over the inclusion of local government bonds into the FTSE Russell's World Government Bond Index (WGBI) starting April.

Foreign investors also ditched $1.8 billion and $708 million of Indonesian and Thai bonds, respectively.

Malaysian and Indian bonds, however, saw cross-border inflows of $1.52 billion and $671 million, respectively, last month.

(Reporting by Gaurav Dogra; Editing by Ronojoy Mazumdar)

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