SINGAPORE/BENGALURU (Reuters) – Foreign investors are shifting away from U.S. bonds and pouring money into Asia, where stable economies and attractive yields are drawing record inflows. Malaysia has emerged as a top destination for this capital.
From Indonesia to India, foreign holdings of government bonds are rising, boosting markets that were once dominated by local investors.
“We’re in a very good environment for Asian investments,” said David Chao, global market strategist for Asia Pacific at Invesco. “Conditions are ideal for Asia and emerging markets to outperform.”
Investors are drawn by a rare combination of falling interest rates and strengthening currencies — a trend not seen in four years. This shift comes amid U.S. dollar weakness and policies from the Trump era that have unsettled developed markets.
Malaysia saw foreign investors buy $3.15 billion worth of its bonds last month — the highest monthly inflow since 2014. India and Indonesia also recorded strong demand.
In contrast to the U.S., Europe, and Japan — where high government spending has hurt long-term debt values — Asian economies are benefiting from low inflation and interest rates near their peak.
With slower growth and possible rate cuts ahead, many investors are locking in current yields, expecting bond prices to rise as rates fall. A weaker dollar further increases returns through currency gains.
“Emerging market assets do well when U.S. rates fall and the dollar weakens,” said Shah Jahan Abu Thahir, head of global markets for Southeast Asia at Bank of America. “That trend is reversing now, and interest in emerging markets is coming back.”
Data from regulators and bond associations shows foreign investors bought $34 billion in Asian bonds in the first five months of 2025 — the largest amount for this period since at least 2016.
Analysts say this is just the start. As long as Asia remains more stable than developed markets, foreign capital is likely to keep flowing in.
“We’re seeing broad interest in fixed income across both large and small emerging markets — Thailand, Philippines, Indonesia, and India,” said Sue Lee, head of markets for Asia South at Citi. She noted that India has been especially active due to recent rate cuts.
Many investors are positioning early, locking in current yields before expected rate cuts drive bond prices higher.
Malaysia stands out. While the market is split on whether the central bank will cut rates, it offers better value than Thailand, where rate cuts are largely priced in.
Thailand saw outflows of $53.6 million in May. Its bond yields are among the lowest in the region, and its economy has been hurt by U.S. trade tariffs. With one-year yields below the 1.75% policy rate, the central bank has little room to cut further, and the government prefers a weaker currency.
Indonesia offers higher yields — its 10-year government bonds carry a 2-point premium over U.S. Treasuries. But investor appetite is dampened by concerns over spending and political risks.
In contrast, Malaysian bonds are seen as more attractive. The central bank has yet to begin easing, the currency is stable, and growth, while weaker, remains steady.
“Indonesia looks expensive, and Thailand has already priced in rate cuts,” said Abu Thahir. “Malaysia still has value because rate cuts are not fully expected yet.”
He expects Malaysia to reduce rates in July, but says the market is divided — creating opportunity for investors.
Despite the optimism, Asia’s bond markets still face challenges. Limited liquidity means that large foreign inflows can cause price swings.
In May, a wave of capital into Hong Kong triggered a rare move in its usually stable currency.
Still, analysts say risks are manageable. Inflation remains low, and foreign ownership is not yet high enough to cause major disruptions.
“For the past five years, foreign portfolio inflows into Asia were very weak,” said Claudio Piron, strategist at Bank of America. “If inflows return gradually, it could actually be a good problem to have.”
