TD Securities: The Asian local Currency Bond Mkt Picture Looks Precarious

TD Securities have noted that "Asia has been a key beneficiary of foreign portfolio inflows year-to-date. Having been first in, and emerging as the first out of the COVID crisis, led by China, the region has attracted the lion's share of portfolio flows to EM assets."

• "The picture has deteriorated in February, with sharp foreign equity outflows during late January/early February in South Korea and Taiwan. India and China are notable outliers, with strong inflows registered."
• "The Asian local currency bond market picture looks precarious at present, largely due to the sharp back up in U.S. Treasury yields. This is likely to weigh on foreign bond portfolio inflows in the weeks ahead."
• "In February, the bond flow picture looks mixed; India has recorded more foreign bond outflows while Indonesia has recorded increased foreign bond inflows though these are dissipating lately."
• "Hedge funds are increasingly long EM Asia assets, which suggests scope for higher U.S. yields to prompt some profit taking/retracement over the short term, even if the medium term prognosis remains positive."