This paper examines the role of local currency bond markets (LCBMs) and foreign investor participation in these markets on capital flow volatility in Asia. Using a panel analysis and impulse response functions generated from a panel structural vector autoregression, we show that greater development of LCBMs in terms of capitalization help to mitigate against capital flow volatility, while foreign investor participation has the opposite effect, particularly for less-developed LCBMs. Our findings have policy implications from a financial stability perspective, whereby continued efforts at enhancing LCBMs while reducing reliance on foreign investors should be encouraged. Strengthening the local investor base and mobilizing domestic resources through LCBMs ought to be a priority for raising long-term capital that will enable the financing of sustainable investment and development.