iBoxx USD Asia ex-Japan Monthly Commentary: June 2022
The month of May was marked by many extreme fluctuations in the financial markets. With inflation uncomfortably high, several central banks announced benchmark rate hikes this month. The widespread regime shift in interest rate policies put pressure on valuations of all asset classes, which had exploded over the past decade from historically low interest rates. The 10-year US Treasury yield rose above 3.1% in May, the highest since 2018, before ending the month at 2.74%. The rebounds were short-lived as rate policy uncertainty coupled with fears of a recession clouded markets.
Asian USD bonds continued to come under downward pressure this month. The iBoxx USD Asia ex-Japan index fell 0.15% in May, marking its fifth consecutive monthly decline this year. The index showed signs of stabilizing following the rise in US interest rates, with the decline in performance this month being smaller than in the previous four months. The index yield (stable at 0.0%) and the index credit spread (up 1.8 basis points) were little changed at 5.32% and 242 basis points, respectively .
This month, the USD Asia IG sub-index outperformed its high yield counterpart, posting a return of 0.37% with an almost unchanged spread. In contrast, the USD Asia HY sub-index fell 2.68%, its gap widening by 57 basis points, mainly due to large losses in the B- and CCC-rated segments across the curve.
Meanwhile, Chinese USD bonds are down 0.37% this month. In May, China’s central bank unexpectedly cut its benchmark benchmark mortgage rate to help the struggling real estate sector. Additionally, another issuer, Sunac China Holdings Ltd, was removed from the China Real Estate sub-index (-6.72%) during the month-end index rebalancing due to missed coupon payments for its securities. of debt.
In contrast, the USD China LGFV sub-index outperformed the broader USD China market this month, posting a return of 0.76% versus -0.37%. It currently offers a yield of 4.46% and a duration of 1.66 years.
June 2022 Rebalance
During this rebalancing, the iBoxx USD Asia ex-Japan index added 11 eligible bonds from the Chinese and Korean markets, bringing 4.9 billion USD of new notional.
The Investment Grade (IG) sub-index saw around $4.5 billion notional raised across 10 new issues, while the High Yield (HY) sub-index saw just over $400 million notional across 1 issue .
Of the 37 bonds removed from the index this month:
- 10 were swapped flat with accrued interest, all issued by Sunac China Holdings Ltd (a property developer in China); and
- 2 were redeemed or redeemed and became ineligible for the index
Two fallen angels were captured this month. Both were short-dated senior USD bonds issued in the Philippine and Indian markets.
Please refer to the appendix of the full report for a breakdown of this month’s insertions and deletions, and a list of Fallen Angels and Rising Stars recognized in 2022.
After the rebalancing, the overall duration of the index fell slightly to 4.29 years. The markets that recorded the most notable duration changes were Hong Kong (up 0.05 years), Indonesia (-0.04 years) and Pakistan (-0.05 years).
Among the seven largest markets in the index, Indonesia (up 0.37%), South Korea (up 0.44%) and the Philippines (up 1.02%) outperformed, while Mainland China (-0.37%) was the worst performer.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.