Asian bonds drew their strongest monthly foreign inflows in three months in May, as resilient regional economic activity and rising caution over an equity market rally boosted demand for relatively safer debt securities.
Foreigners bought a net $5.61 billion of local bonds in South Korea, Indonesia, Malaysia, Thailand and India, their largest monthly net purchases since $6.54 billion in February, data from local regulators and bond market associations showed.
Factory activity expanded across most Asian economies in May, with South Korea's PMI climbing to 54.8, its highest level since March 2021, while Japan and Taiwan also benefited from surging demand linked to artificial intelligence investment.
"EM bonds have benefited from resilient global GDP growth and commodity strength - enhancing their role as a key allocation," analysts at UBS Global Wealth Management said in a report last week.
"We believe elevated yields and supportive central banks underpin a positive outlook for EM debt, which we rate Attractive," the UBS report said.
Foreigners bought roughly $4.9 billion worth of South Korean bonds, the largest monthly inflow since February.
South Korean bonds are being phased into FTSE Russell's benchmark bond index from April 2026, with full inclusion scheduled for November 2026.
Indonesian and Thai bonds also attracted cross-border inflows of $1.2 billion and $597 million, respectively, as foreigners extended their purchases into a second consecutive month.
Meanwhile, Malaysian bonds saw net foreign outflows of $1.08 billion, as tensions within the country's ruling alliance intensified.
Indian bonds also posted net foreign outflows of $10.07 million, with overseas investors extending their selling streak to a second consecutive month.
