Asian bond yields surge as Iran war triggers capital outflows

Tuesday 24 March 2026 - 12:20

By: Dakir Madiha

Asian bond yields surge as Iran war triggers capital outflows

Government bond markets across Asia have come under heavy pressure as the conflict involving Iran drives oil prices higher and prompts a sharp withdrawal of foreign capital. Yields have climbed across major economies, reflecting rising inflation risks and shifting expectations for global monetary policy.

In Japan, the yield on 10 year government bonds rose to 2.32 percent on March 23, well above its long term average. Australia’s 10 year yield reached 5.16 percent, its highest level in 14 years. India’s benchmark 10 year yield increased to 6.85 percent, while South Korea’s equivalent climbed to 3.594 percent and has continued to trend upward. Thailand’s 10 year yield also rose, hitting a 13 month high of 2.24 percent.

The broader global bond market has seen a sharp decline in value. More than 2.5 trillion dollars has been wiped out in March alone, putting the market on track for its steepest monthly drop since September 2022. Sovereign bonds have led the losses, falling by 3.3 percent over the month. Analysts warn that continued disruption in energy supply could push oil prices even higher, prolonging the pressure on fixed income markets.

Capital outflows have accelerated across the region. In India, foreign portfolio investors withdrew about 9.6 billion dollars from equities by March 20, while bond markets recorded additional outflows of around 820 million dollars in early trading sessions. The sustained selling has reflected declining investor confidence amid rising global uncertainty.

Thailand has been among the hardest hit. International funds have pulled more than 1 billion dollars from Thai bonds this month, putting the market on track for its largest foreign driven sell off since 2022. On one trading day alone, investors withdrew 1.2 billion dollars from bonds and a similar amount from equities. Thai bonds have delivered losses of 8.5 percent for dollar based investors during March, ranking among the weakest performances in the region.

Energy dependence is amplifying the pressure on Asian economies. Countries that rely heavily on imported fuel are facing rising costs, which are feeding into inflation and weakening investor sentiment. In South Korea, state backed institutions have postponed international bond issuance, with Korea Gas Corporation opting to repay a 200 million dollar bond instead of refinancing it under current market conditions. Credit default swap spreads in the country have also recorded one of the sharpest monthly increases outside the Middle East.

Commodity prices have surged in tandem with geopolitical tensions. Analysts noted that jet fuel prices in Singapore have risen by 175 percent this year, while liquefied natural gas prices in Asia have increased by 130 percent. These trends are reinforcing expectations that central banks may need to maintain or even tighten monetary policy, reversing earlier assumptions of rate cuts.

The shift in expectations is reshaping investor positioning. Markets are increasingly pricing in the possibility of higher interest rates rather than easing, a change that could keep upward pressure on bond yields across Asia in the coming months.