While overseas investors sold Asian equities in May, they bought the region's bonds, which were made more attractive by falling yields and offered some safety amid worries over the Sino-U.S. trade war, Brexit and a global economic slowdown.
Foreigners bought a net $4.61 billion of regional bonds after selling $3.64 billion in April, data from regional banks and bond market associations in Malaysia, Thailand, Indonesia, South Korea and India showed.
"If you look at how risk aversion in Asia has evolved over the past four to six weeks, it has definitely increased. But it is not excessively boiling over," said Terence Wu, a currency strategist at OCBC Bank.
"What is happening is there is a case for people to move out of equities, which are inherently risky and do a rotation towards Asian bonds."
Analysts said that slowing economic growth in Asia would prompt many central banks to cut their policy rates this year, which in turn would boost the demand for its bond markets.
Also, expectations have increased that the U.S. Federal Reserve would cut its interest rate amid slowing U.S. growth and a sharp step-down in hiring in May.
Higher U.S. yields on the back of Fed's aggressive tightening measures triggered sharp foreign outflows from Asian bonds last year.
OCBC's Wu said it would be easier for Asian central banks to cut their own interest rates so long as expectations for Fed rate cuts prevailed, and that would benefit Asian bonds.
In May, South Korean bonds attracted $5.97 billion worth of foreign money, the biggest in over 10 years, with investors expecting its central bank to cut interest rates as the export-oriented economy has caught a chill from the Sino-U.S. trade war.
Thai bonds also attracted $257 million of foreign money, which was their first inflow in five months, following months of uncertainty in the run-up and immediate aftermath of an election in March, though it has resulted in a military-backed government retaining power.
"Now that we are starting to get more clarity on the political landscape, that political risk premia should begin to compress and bond outflows of recent months could start to reverse, helping to buoy Thai bonds," said Duncan Tan, strategist at DBS Bank in a note.
Overseas investors also bought Indian bonds, as a landslide victory for incumbent Prime Minister Narendra Modi provided hopes for more economic reforms.
On the other hand, Malaysian and Indonesian bonds witnessed sharp outflows in the last month.