Most Asian bonds faced foreign outflows in July, deterred by a rapid spread of the Delta coronavirus variant that raised concerns over the region's recovery.
Foreigners sold a combined net total US$2.06 billion in Indonesia, Malaysian, Thai and Indian bonds, data from regulatory authorities and bond market associations showed.
"Global investors are likely cautious around upcoming Fed taper and the prospects of weaker Asian currencies. Current wave of virus resurgences across Asia and the resultant downside risks to regional growth are also weighing on investor sentiments," said Duncan Tan, a strategist at DBS Bank.
Title: Foreign flows into Asian bonds, https://fingfx.thomsonreuters.com/gfx/mkt/znpneedyrvl/Foreignper cent20flowsper cent20intoper cent20Asianper cent20bonds.jpg
On the other hand, they bought a net US$8.07 billion worth of South Korean bonds last month, the data showed.
Tan said South Korean bonds tend to see stronger inflows during times of investor caution.
"Because, holding Korean Treasury Bonds on an FX-hedged basis tends to be a good hedge for weaker regional growth and global market volatility."
The fast spread of the Delta variant in the region hit economic activity last month, with Indonesia, Thailand and Malaysia reporting a contraction in manufacturing activity.
Malaysia faced foreign outflows worth US$862 million, compared with outflows of US$120 million in June.
Title: Foreign investors' holdings in Asian bonds, https://fingfx.thomsonreuters.com/gfx/mkt/jnvweegqqvw/Foreignper cent20investors'per cent20holdingsper cent20inper cent20Asianper cent20bonds.jpg
Indonesia and Thailand saw net selling of US$794 million and US$302 million respectively.
Indian bonds also booked cross-border outflows for a seventh straight month, amounting a net US$105 million.
"Asia's resurgent virus situation, especially among ASEAN economies, has prompted us to downgrade our 2021 growth and FX outlooks for the region," said Khoon Goh, head of Asian research at ANZ.
"It has also triggered portfolio outflows, which will only ease and reverse when the current pandemic wave has meaningfully ebbed and growth recovery resumes," he said.
(Reporting by Gaurav Dogra and Patturaja Murugaboopathy; editing by Uttaresh.V)