By Gaurav Dogra
(Reuters) - Asian bonds received their smallest foreign inflows this year in November, amid rising prospects of quicker unwinding of stimulus measures by the U.S. Federal Reserve and caution about economic uncertainties from the Omicron coronavirus variant.
Overseas investors purchased a combined net total of $1.22 billion in South Korean, Thai, Indian, Indonesian and Malaysian bonds last month, which was their smallest net buying since December 2020, data from regulatory authorities and bond market associations showed.
(Graphic on, Foreign flows into Asian bonds: https://fingfx.thomsonreuters.com/gfx/mkt/klvyknbrlvg/Foreign%20flows%20into%20Asian%20bonds.jpg)
"There is a trend of caution amid the mix of Fed tightening and Omicron risks, which flared up in late November," said Eugene Leow a strategist at DBS Bank
"Previous Fed tightening episodes did place pressure on EM and investors are probably similarly cautious this round" DBS's Leow added.
South Korean bonds received $2.79 billion, marking the 11th successive month of foreign inflow in November.
South Korean bonds have so far pulled in a net $52.26 billion in foreign money this year, that lifted cross-border investors' cumulative holdings in the country's bonds to 9.3% at end-November, the biggest since at least 2014.
Thai bonds secured $1.3 billion, a big jump from $480 million worth of inflows in the previous month.
Indian bonds attracted $131 million after facing a outflow in the previous month.
Meanwhile, overseas investors sold Indonesian bonds – for a third straight month – worth $2.15 billion, trimming their holdings in Indonesian bonds to 20.55%, the lowest since at least 2014.
Malaysian bonds also saw cross-border outflows of $848 million, marking the first net selling in four months by outsiders.
The Fed on Wednesday is expected to signal a faster wind-down of its $120 billion a month bond buying programme in a move to fight a high rate of inflation, which could move it one step closer to raising interest rates.
"The outlook for portfolio flows remains mixed. Increasing vaccination rates and rising mobility levels will support the rebound in economic activity," said Khoon Goh, head of Asia Research at ANZ Bank.
"However, potentially faster tapering and earlier-than-expected U.S. rate hikes, and uncertainty caused by the Omicron variant, pose key downside risks."
(Graphic on, Foreign investors' holdings in Asian bonds :https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkyollvx/Foreign%20investors%20holdings%20in%20Asian%20bonds.jpg)