“Many global investors would have been underweight lower yielding Asian bonds — but once Fed cuts became more certain, they had to reduce that underweight,” said Charlie Robertson, head of macro strategy at FIM Partners. “US dollar weakness has also re-opened the prospect of rate cuts” in the region.
The broad-based inflows indicate investors are turning more positive on emerging-market debt as a whole as the Federal Reserve moves closer to cutting interest rates. That contrasts with the underperformance of developing nation bonds during the US central bank’s period of higher-for-longer borrowing costs.
While many emerging economies in Asia are expected to cut interest rates along with the Fed, the quantum of easing is forecast to be less than it will be the US. For example, investors are pricing in roughly two percentage points of rate cuts for the Fed by the end of 2025, but only about 75 basis points in South Korea during the same period, swap markets show.
See also: Staying neutral among the highs and lows of 2H2025
Chart: Bloomberg
