Sunny spells but no vacation for Asian bond markets

Asian bond markets have been staging an unexpected recovery as fund flows turn positive and investors begin putting money back to work. Can it last as Sino-US trade tensions take centre stage once more?

Asia’s fixed-income markets have been regaining some of their old vigour, as money flows back into emerging market bond funds and issuers put their cash piles to work, reinvigorating the primary market and driving secondary spreads tighter.

The positive feedback loop, which began around the middle of July, mirrored three weeks of positive inflows into emerging market bond funds to the week ended July 27 and a string of analysts’ reports arguing Asian G3 bonds had become oversold relative to their emerging market and US peers.

However, as August gets under way, fixed-income analysts, bankers and investors remain undecided whether the market has truly bottomed out. Signs...

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