Search for yield and home bias in Asian bond markets

This paper examines how foreign investors' search-for-yield behavior affects home bias in the bond markets of Asian countries. Although numerous prior studies have addressed home bias in bond markets, most employ bond returns—not yields—as explanatory variables, and their ability to explain home bias has shown considerable variation. Using data from 2002 to 2021, we conduct regression analysis on foreign investors’ portfolio composition in 11 countries. The results confirm that higher yields reduce home bias, particularly in developing Asian countries. Specifically, while yield indicators do not show a significant impact on foreign investment in advanced Asian countries, they significantly promote foreign investment in developing Asian countries with relatively high yields. Furthermore, foreign investors are attracted exclusively to local-currency yields, not U.S. dollar-denominated yields. These trends have become more pronounced following the 2008 global financial crisis, indicating that developing Asian countries have emerged as major targets in the search-for-yield.