By Gaurav Dogra

(Reuters) – Bonds in emerging Asia excluding China saw outflows of foreign capital for a second straight month in April, on higher U.S. yields and worries about China’s tough coronavirus lockdowns.

Foreign investors sold a combined net $2.35 billion in South Korean, Thai, Indian, Indonesian and Malaysian bonds last month, according to data from regulators and bond market associations. It was the second consecutive monthly sale by foreigners of Asian bonds, the data showed.

(Graphic: https://fingfx.thomsonreuters.com/gfx/mkt/znpneoedevl/Monthly%20foreign%20investment%20flows%20Asian%20bonds.jpg)

Yields on 10-year US government bonds rose sharply over the past month on expectations that the Federal Reserve would act aggressively to rein in soaring inflation levels.

The Fed raised its benchmark overnight interest rate by 50 basis points this month and announced that it would start shrinking its balance sheet next month to counter unabated inflation.

“The conflict in Ukraine and an increasingly belligerent U.S. Federal Reserve have been the main drivers of outflows, given significantly lower global risk sentiment and higher USD cost of funds,” said Jennifer Kusuma. , senior rates strategist at ANZ.

“We expect capital outflows from emerging Asia to continue, although most economies have strong fundamentals and foreign exchange reserves to withstand increased volatility.”

Foreigners sold Indonesian bonds worth $1.41 billion, while Indian and Malaysian bonds faced outflows of $579 million and $503 million, respectively.

Indonesia and India faced a sharp rise in consumer prices in April as food and energy prices jumped, raising fears that the respective central banks might hike interest rates more aggressively to rein in prices.

Meanwhile, monthly cross-border purchases of South Korean bonds fell to a low of $29 million last month.

(Graphic: https://fingfx.thomsonreuters.com/gfx/mkt/akvezrzgopr/Foreign%20investors%20holdings%20in%20Asian%20bonds.jpg)

Foreign investors bought $112 million worth of Thai bonds last month, after net sales of $3.08 billion the previous month.

“We are more concerned about low-yielding countries like Korea and Thailand,” said Yu FU, investment specialist for emerging market debt at BNP Paribas Asset Management.

“Domestic investor support has also weakened as domestic inflationary pressures have increased, opening upside risks around national monetary policy rates,” said Jennifer Kusuma, senior rate strategist at ANZ.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Rashmi Aich)