Foreign investors withdrew sharply from Asian bond , marking the largest outflow in more than two years.
The selloff, led by Indonesia, reflected deepening fiscal and political concerns across the region and growing unease about slowing global demand.
Data from regional authorities showed that overseas investors offloaded a net $5.48 billion worth of bonds from Indonesia, Malaysia, Thailand, India, and South Korea the highest since March 2022.
Analysts said the exodus underscored a shift in sentiment as uncertainty over fiscal discipline and US trade policy weighed on Asian markets.
Indonesia bore the brunt of the selloff after widespread protests and the abrupt removal of Finance Minister Sri Mulyani Indrawati rattled investor confidence.
Foreign investors dumped $4.6 billion worth of Indonesian bonds, the largest monthly outflow since at least 2016, according to central bank data.
In Malaysia, investors reduced holdings by $1.63 billion the biggest disposal since October 2024 as concerns grew over weakening exports and a slower pace of fiscal reforms.
The bond exodus came amid signs of cooling industrial production across Asia’s major economies, with sluggish US growth, China’s persistent demand weakness, and the anticipated impact of US President Donald Trump’s tariff measures further dampening sentiment.
“The market reaction in Indonesia has been swift and severe,” said Rini Prasetyo, a Jakarta based fixed income strategist at Bank Mandiri.
“Investors are worried about fiscal slippage, particularly as the government faces rising social unrest and political uncertainty ahead of next year’s elections.”
Economists said the sudden shift in capital flows points to a growing divergence between Asian markets once considered resilient and the global risk environment now dominated by trade tensions and inflation fears.
Khoon Goh, head of Asia research at ANZ, said in a recent report that “weakness in domestic demand will continue to constrain growth in most of the region.”
“As a result, Asian assets could be less supported over the medium term,” Goh said, adding that rising US yields and a stronger dollar have made emerging market bonds less attractive to foreign investors.
Market analysts also noted that while Indonesia’s turmoil triggered immediate selling, the broader regional slowdown was already putting pressure on bond markets.
“The outflows are not just about politics,” said Tan Wei Ling, chief economist at Maybank in Singapore. “It’s a combination of weaker global trade, shrinking export orders, and heightened fiscal stress that’s making investors more cautious.”
According to bond market associations across the region, September’s net outflows were heavily concentrated in Indonesia and Malaysia.
Meanwhile, smaller inflows were reported in South Korea, India, and Thailand $563 million, $124 million, and $60 million respectively providing modest offsets.
Cumulative data show that regional bond flows had been recovering gradually since late 2023 as inflation cooled and central banks slowed the pace of interest rate hikes. However, September’s reversal wiped out much of those gains.
Comparatively, Indonesia’s $4.6 billion outflow represented nearly 85 percent of total regional foreign exits, underscoring its vulnerability to fiscal and political shocks.
The bond selloff has already begun to affect local sentiment. In Jakarta, small investors said the volatility had made them reconsider fixed income investments.
“I had savings in government bonds for the past three years,” said 36 year old office worker Dimas Putra. “But now I’m pulling back. The political situation makes me nervous about what might happen next.”
Financial advisers across the region echoed similar concerns. “Clients are asking more about risk exposure than returns,” said Ananya Sharma, a private wealth consultant based in Mumbai. “They are cautious and waiting for more stability before committing to Asian bonds again.”
Analysts expect bond markets to remain under pressure through the end of the year as global growth slows and political uncertainties linger.
In Indonesia, investors are watching how President Prabowo Subianto’s administration handles fiscal management following the removal of Indrawati, who was widely credited with maintaining budget discipline.
“Policy credibility will be key,” said Eugene Leow, senior rates strategist at DBS Bank in Singapore. “If fiscal signals remain unclear, foreign investors may continue to trim exposure to Indonesian debt.”
Elsewhere in the region, the trajectory of US interest rates and China’s industrial recovery will play a decisive role in determining whether inflows can resume.
Economists expect only limited relief in the short term, given persistent concerns about trade barriers and weak domestic consumption.
The record outflows from Asian bonds in September highlight the fragility of investor confidence in the face of fiscal instability and slowing economic momentum.
While select markets such as South Korea and India continue to attract modest inflows, the region’s broader outlook remains clouded by uncertainty.
Until political clarity and stronger growth signals emerge, analysts warn that Asian bond markets may struggle to regain the steady foreign demand that once defined them.