September 2022 Commentary
The hawkish tone from the Federal Reserve did not let up, and markets saw another 75 bps rise in the federal funds rate in September, with no signs of easing up as we head into the last quarter of the year. This was even as inflation expectations receded—the 10-Year Breakeven Inflation Rate declined approximately 15% over the past two months, to 2.15% as of Sept. 30, 2022. Against this backdrop, major indices across equity and fixed income markets continued their slide this month.
The S&P 500® fell into a new 2022 low after a 9.34% decline in September, losing close to 25% YTD. U.S. Treasuries—as represented by the iBoxx $ Treasuries—also lost 3.50% in September, while posting a return of -13.38% YTD.
The poor performance in U.S. markets continued in Asian fixed income, as the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) recorded its lowest level since December 2018, losing 5.19% in September and 13.89% YTD.
It was a sea of red in the underlying Asian local markets, with Thailand (-3.40%) and the Philippines (-2.96%) posting the largest losses (in domestic currency terms). At the same time, the U.S. dollar continued to strengthen against all ALBI local currencies, further dragging the performance of the overall index (unhedged in USD).
Apart from the China Onshore 1-3 years maturity segment (up 0.12%), all markets declined across the yield curve, with the largest losses concentrated in the 10+ maturity segment. The Philippines 10+ (-6.58%) and Hong Kong (-6.16%) posted the largest declines.
From a yield perspective, the overall index yield (in semiannual terms) continued to rise, offering 4.41% as of Sept. 30, 2022. Unsurprisingly, yields of all underlying markets went up, with the largest changes coming from the Philippines (up 69 bps) and Hong Kong (up 67 bps). India remained the highest-yielding bond market in the index, offering 7.44%, while China Onshore (2.85%) remained the lowest-yielding market.
