Overseas investors disposed of a combined net total of $5.08 billion in Indonesian, Thai, Malaysian, South Korean and Indian bonds last month, marking the biggest monthly outflow since March, regulatory data and bond market associations showed.
The emerging Asia bonds were hit by a surge in U.S. yields and a jump in the U.S. dollar, making the riskier assets less attractive.
As major central banks are looking to hike their interest rates in their efforts to combat soaring inflation levels, further outflows can be expected from the regional markets, analysts said.
Fears over a global economic recession have accelerated in recent weeks, as economists expect the higher interest rates and inflation levels would lead to slower consumption and sluggish business activity around the world.
“From the perspective of Asia bonds, a U.S. recession would be a massive headwind,” said Duncan Tan, a strategist at DBS Bank in a research note last month.
The U.S. dollar index jumped 2.88% last month and hit over a 19-year high, boosted by the hawkish Federal Reserve and safe heaven demand amid economic concerns.
Foreigners sold Indonesian bonds worth $2.13 billion, trimming down their cumulative holdings in local currency government bonds to 15.65% at end-June, the lowest since at least 2014.
Thai, Malaysian and South Korean debt witnessed outflows of $1.11 billion, $940 million, and $725 million respectively last month, after each attracting inflows a month ago.
Meanwhile, cross-border selling in Indian bonds eased to a five-month low of $181 billion as a slide in global oil prices calmed some concerns over its trade deficits, as the country is a major importer of crude oil.
The European Central Bank is set to deliver its first interest rate hike since 2011 this week, while the U.S. Federal Reserve is likely to raise its interest rates by 75 basis points at its July policy meeting.