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iBoxx ALBI Monthly Commentary: June 2022

U.S. Equities Market Attributes June 2022

ETF Transactions by U.S. Insurers in Q1 2022

iBoxx EUR Monthly Commentary: May 2022

iBoxx GBP Monthly Commentary: May 2022

iBoxx ALBI Monthly Commentary: June 2022

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Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

June 2022 Commentary

Not since 1994 have we seen a rate hike of 75 bps by the FOMC as announced on June 15, 2022—its third hike this year. Many saw this rate hike as an affirmative and decisive move by the Fed to combat the highest inflation the U.S. economy has seen in decades. Through June, the 10-2 Year U.S treasury yield spread narrowed from 0.32% to 0.06%, signaling continued flattening of the yield curve, which might indicate poor sentiments in the near-term economy outlook.

The S&P 500® recovered slightly from losses in the first half of June but still ended the month with a 8.39% decline. U.S. Treasuries—proxied by the iBoxx USD Treasuries—were relatively flat, while U.S. TIPS—represented by the iBoxx TIPS Inflation-Linked Index—were up 0.97%.

In Asian fixed income, the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) lost 2.80%, with losses in 8 of the 11 sub-markets. South Korea (-2.58%), Singapore (-1.75%) and Hong Kong (-1.42%) were the bottom three performers, while only India (up 0.45%), Indonesia (up 0.20%) and China Offshore (up 0.06%) recorded gains in local currency terms in June.

Most parts of the yield curve across the individual markets saw red this month, with the largest losses concentrated in the long end. The South Korea 10+ Year (-5.01%), Singapore 10+ Year (-3.76%) and Hong Kong 10+ Year (-3.26%) were the hardest hit. India, on the other hand, was
the only market that saw gains across maturity bands.

Yields (in semiannual terms) rose in every market in June. As a result, the average index yield rose 22 bps to 4.22%. The largest uptick came from Hong Kong (up 40 bps), which, as of June 30, 2022, offered an average yield of 3.82%, its highest month-end yield since the inception of
the index. India remained the highest-yielding bond market in the index, offering 7.51%, while China Onshore (3.00%) replaced Singapore (3.18%) as the lowest-yielding market.

 

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U.S. Equities Market Attributes June 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

Key Highlights

Market Snapshot

Enter the bear, exit the bull.  We decidedly entered a bear market this month, as higher inflation, higher interest rates and a slowing economy pushed the S&P 500 into official bear territory (down 20% from its last closing high, in this case Jan. 3, 2022’s 4,796.56).  It reached a closing low of -23.55% (3,666.77, on June 16), then seesawed upward, as buyers went bargain hunting, but with slower trading than when sellers dominated the market.  The S&P 500 closed the month at 3785.38, down 8.39%, and it closed at -16.45% for Q2 (the worst Q2 since 1970’s -18.87%) and -20.58% YTD (the worst start to a year since 1970’s -21.01% ).  Last Fourth of July, investors were opening their half-year statements with a 14.41% gain; now it’s a 20.58% decline.

At this point, inflation is being placed squarely as the fall guy for the market declines, as the market’s “expert” historians cite the Fed’s “excess” stimulus programs as the reason for the 40-year high inflation rate, and then the Fed’s attempts to Volker its way out of inflation and avoid a recession, with the market still split on if they can avoid one (but more seeing it than not).

As for the current downturn (which is broad), it should be noted where it came from.  The S&P 500 posted a closing high pre-COVID-19 on Feb. 19, 2020 (3,386.15), and it quickly declined 33.93% by March 23, 2020 (closing at 2,237.40), reacting to the pandemic.  It also quickly rebounded from that low to set a new closing high on Aug. 18, 2020 (3,389.78), 181 days later, and it set another 90 new closing highs until this year’s Jan. 3, 2022, closing high (4,796.56).  During that time period, earnings (operating and as reported), sales, cash-flow, buybacks and dividends all set new records. 

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ETF Transactions by U.S. Insurers in Q1 2022

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Raghu Ramachandran

Head of Insurance Asset Channel

Introduction

In the first quarter of 2022, insurance companies traded USD 19.5 billion in ETFs; this is roughly in line with the amount traded in the first quarter for 2020 and 2021.  However, insurers only added USD 0.2 billion in ETFs to their general accounts, which was much lower than the past two years.  Insurers continued the trend from 2021 of selling Equity ETFs and buying Fixed Income ETFs.

ETF Trades

In the first quarter of 2022, insurance companies traded USD 19.5 billion in ETFs.  This is down from USD 24.6 billion in the first quarter of 2020 but higher than USD 15.2 billion in Q1 2021 (see Exhibit 1).

As we have seen before, companies traded more at the end of the quarter.  Indeed, companies traded more in March than in January and February combined (see Exhibit 2).

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iBoxx EUR Monthly Commentary: May 2022

May 2022 Commentary

Sovereign debt led the EUR-denominated debt losses in May, with inflation amid the energy crisis being heightened by the ongoing war in Ukraine.

Month-to-date returns on European debt were in negative territory across all the eurozone countries (see Exhibit 2).  Debt issued by the Baltic states and Greece has seen the strongest declines not only over May, but over the past 12 months.  In the iBoxx € Corporates Index, Real Estate and Utilities had the worst returns last month.

The yield on the iBoxx € Overall Index, which incorporates both sovereign and corporate debt, rose about 25 bps, while duration fell by 0.13 to 6.98.  Yields on corporate debt saw higher increases than those for sovereigns.

Annual yield on the iBoxx € Corporates Index rose by 30 bps to 2.69%, with duration slipping only 0.06. Expectations that the European Central Bank will taper its bond buying starting in the third quarter have been pushing yields higher, as this would withdraw an important buyer from this market.


iBoxx GBP Monthly Commentary: May 2022

May 2022 Commentary

The British pound sterling-denominated iBoxx indices extended losses in May but at a slower pace than in previous months. Yields on iBoxx GBP Indices rose across the board, with the duration slipping lower. Over the course of the month, the short maturities halted losses, with some sectors flipping into positive territory.

However, the longer maturities and government-issued bonds remained under pressure. The iBoxx GBP Gilts Index, reflecting government bonds, returned -3.28% last month, with the biggest monthly declines concentrated in the long-dated maturities, amid fears of stagflation in the economy.

Earlier in May, the Bank of England’s governor, Andrew Bailey, said the U.K.’s central bank had limited tools at its disposal to limit further inflation hikes, which rose to new highs in the April reading released mid-May.

In the corporate space, Utilities, which tends to include more leveraged companies, saw the lowest monthly returns, at -2.39%. Consumer Services was not far behind, with worries of economic slowdown looming.


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