iBoxx USD Asia Ex-Japan Monthly Commentary: August 2022

iBoxx SGD Monthly Commentary: August 2022

iBoxx ALBI Monthly Commentary: August 2022

U.S. Equities Market Attributes August 2022

iBoxx SGD Monthly Commentary: July 2022

iBoxx USD Asia Ex-Japan Monthly Commentary: August 2022

August 2022 Commentary

The recent rally in U.S. equities hit a reset after hawkish comments by the Federal Reserve Chairman Jerome Powell at the Jackson Hole Economic Symposium.

In his speech to investors, Powell indicated that the Fed is committed to raising rates to quell inflation and to bring demand and supply dynamics in better balance. His remarks sparked a sell-off in U.S. stocks and pushed bond yields and the U.S. dollar higher.

For the month of August, the 2-year U.S. Treasury yields rose from 2.90% to 3.45%, while the 10-year U.S. Treasury yields were up 48 bps to 3.15%. Meanwhile, the U.S. dollar came close to a 20-year high against other major currencies.

With U.S. yields rising across the curve in August, the rally of Asian USD bonds in July was short-lived. This month, the iBoxx USD Asia ex-Japan Index fell 0.40%, largely driven by the negative performance of its investment-grade bonds. The overall index yield rose 24 bps to 5.82%, and the overall index spread narrowed 26 bps to 244 bps.

Making up about 85% of the overall index by market value, the investment grade (IG) subindex considerably underperformed the high yield (HY) subindex this month. In the IG segment, losses were seen in the mid-to long-end of the curve. In contrast, the HY subindex generally logged gains across the maturity buckets. Moreover, the HY subindex yield and spread dropped by 75 bps and 137 bps, respectively.

iBoxx SGD Monthly Commentary: August 2022

August 2022 Performance

The latest Consumer Price Developments report showed inflation continued to pick up in Singapore. The Monetary Authority of Singapore (MAS) Core Consumer Price Index (CPI) rose to 4.8% on a year-over-year basis in July, mainly driven by the rise in prices of food and energy, while the CPI-All Items inflation moved up 0.3 percentage points to 7.0% year-over-year for the same period.

With upward price pressure from imported goods and strong consumer spending, the central bank projects that inflation will persist and stay elevated for the next few months.

In other news, Singapore joined a growing list of countries to fund the battle against climate change. In early August, the MAS issued its first sovereign green bond, known as Green Singapore Government Securities (Infrastructure). Proceeds from the issuance will be used to finance eligible projects from the Singapore Green Plan 2030, including two new future mass rapid transit lines. The bond, which has an issuance size of SGD 2.4 billion and a tenor of 50 years, was priced at a yield of 3.04%.

After a strong performance (up 1.45%) in July, the iBoxx SGD Overall Index resumed its downward trend, falling 1.16% in August. The index yield dropped 23 bps and finished the month at 3.28%.

The sovereign and non-sovereign subindices both recorded losses in August. With a weight of around 35% by market value in the overall index, non-sovereign bonds outperformed sovereign bonds by 111 bps.

The investment grade (IG) subindex had negative performance this month. In general, rating segments A and above saw large losses in the medium- to long-dated maturity buckets. In contrast, rating segment BBB recorded the largest gain in the 10+ year maturity bucket. The high yield subindex outperformed the IG subindex by 213 bps but has only about 5% weight in the overall index.

The top five performers were all subordinated corporate bonds from the financial sector. The worst five performers included senior, short- to medium-dated corporate bonds, as well as ultra-long-dated sub-sovereign bonds from the Land Transport Authority of Singapore. No bonds in the index dropped more than 5% this month.

iBoxx ALBI Monthly Commentary: August 2022

Contributor Image
Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

August 2022 Commentary

The Jackson Hole Symposium was one of the key events investors looked out for in August, as they paid close attention to the speech by the Federal Reserve Chair to anticipate the next move in the upcoming FOMC meeting in September. Markets were somewhat surprised by the hawkish stance, with a clear message that tackling inflation remained the main objective even at the expense of slower growth.

In the aftermath of the speech on Aug. 26, 2022, the S&P 500® lost 3.37% (one-day decline) and was down 4.24% for the month of August. U.S. Treasuries—as represented by the iBoxx $ Treasuries—also lost 2.64% in August.

It was a contrasting picture in Asia, as moves from central banks varied from market to market. The People’s Bank of China lowered its five-year loan prime rate (LPR) by 15 bps to 4.30% and its one-year LPR by 5 bps to 3.65%. This came one week after lowering both the one-year medium-term lending rate (MLF) and seven-day reverse repo rate by 10 bps in mid-August in a bid to inject liquidity into the economy. The onshore bond market rallied as a result, which saw the iBoxx ALBI China Onshore—consisting of China Government Bonds and Chinese Policy Banks—return 1.03% in August.

From a broader Asian perspective, the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) fell into the red, returning -1.31%, largely due to local currency FX losses against the U.S. dollar. This was despite most markets (in domestic currency terms) recording positive returns, except for South Korea (-4.46%) and Hong Kong (-2.08%).

This month, the largest losses were concentrated in the 10+ maturity segment, where South Korea 10+ (-8.51%) and Hong Kong 10+ (-5.76%) stood out. There were a number of markets that saw gains across maturity segments this month, including China On- and Offshore, India, Indonesia, Malaysia, the Philippines and Thailand.

The overall index yield (in semiannual terms) rose above 4%, offering 4.09% as of Aug. 31, 2022. Hong Kong (up 57 bps), South Korea (up 56 bps) and Singapore (up 24 bps) contributed to the increase, while other markets saw their yields decline. India remained the highest-yielding bond market in the index, offering 7.30%, while China Onshore (2.78%) remained the lowest-yielding market.


U.S. Equities Market Attributes August 2022

Key Highlights

- The S&P 500® was down 4.24% in August, bringing its YTD return to -17.02%.
- The Dow Jones Industrial Average® lost 4.06% for the month and was down 13.29% YTD.
- The S&P MidCap 400® fell 3.25% for the month, bringing its YTD return to -14.46%.
- The S&P SmallCap 600® was down 4.51% in August and had a YTD return of -15.53%.

U.S. Equities
August 2022 - Exhibit 1

Market Snapshot

Winston Churchill (June 4, 1940), and now Jerome Powell (Aug. 26, 2022): "We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender."

The S&P 500 tried to balance interest rates and Fed expectations against costs and profits, but found no balance in August, as it traded most of the month up (reaching 4.72% on Aug. 16), supporting the 4,100 level and then 4,200 (and at one point breaking above 4,300). It ignored statements from the Fed that it would do whatever it took to fight inflation and ended the month trying to defend 4,000, but it closed south at its monthly low of 3,955 (down 4.24% for the month). The realization came at Jackson Hole (with a one-day 3.39% decline), when Powell committed to beating inflation, to "use our tools forcefully" and "for some time," acknowledging that it would inflict "some pain," which he said was one of the "unfortunate costs of reducing inflation."

The result was that the market changed its anticipation of dovish Fed actions to expect an interest rate increase of 0.75% at its Sept. 20-21, 2022, meeting (there are some hoping for 0.50%, along with a few expecting 1.00%), followed by a 0.50% hike in November and then a 0.25% rise in December. There now seems to be no market for bets on a first-half Fed rate cut (a few for the second half), and given the time the increases take to fully flow through the economy, I would personally add rightly so.

For the index, this meant a 4.24% decline in August, down 17.02% YTD, and up 7.86% from its recent June 16, 2022, low as the market entered September, which is historically the worst month of the year, with an average decrease of 1.03% (since 1928).

September is traditionally when we get back to work from our summer vacation, but neither July nor August seemed dull. Economic data is expected to dominate the view, and therefore the trades (and reallocations), as the month will open with the ISM Manufacturing PMI, followed by Employment (Sept. 2), with the usual suspects following: ISM Services PMI (Sept. 6), CPI (Sept. 13), PPI (Sept. 14), Imports/Exports (Sept. 15) and then the Quadruple Witching day and S&P 500 rebalance (Sept. 16). The main event will be the FOMC meeting (Sept. 20-21), as a host of housing, inventory, income and GDP reports follow, with Q3 2022 earnings raising its head at month-end. Also in the news (and in the trades) will be the back-to-school sales, which are not expected to be good, as consumers, in general, have already pulled back. The consumer summer spending spree is already showing forward signs of decline (bookings, purchases), as retail stores are expected to start sales of overstocked merchandise, with concern over the holiday season growing.

Historically, August gains 59.6% of the time, with an average gain of 3.89% for the up months, a 3.95% average decrease for the down months and an overall average increase of 0.72%. In the forward September month, historically, the index posts gains 44.7% of the time, with an average gain of 3.28% for the up months, a 4.70% average decrease for the down months and an overall average decrease of 1.03% (historically, the worst month of the year).

The S&P 500 closed at 3,955.00, down 4.24% for the month (-4.08% with dividends) from last month's close of 4,130.29, up 9.11% (9.22%) from June’s 3,785.38 close, down 8.39% (-8.25%). The three-month period posted a loss of 4.29% (-3.88%), the YTD return was -17.02% (-16.14%) and the one-year return was -12.55% (-11.23%), with the index down 17.55% (-16.68%) from its Jan. 3, 2022, closing high, up 7.86% (8.21%) from the recent June 16 low, and up 16.80% (21.61%) from its pre-COVID-19 Feb. 19, 2020, closing high. Since Biden won the Nov. 3, 2020, U.S. election, the market has gained 17.39% (20.68%).

iBoxx SGD Monthly Commentary: July 2022

July 2022 Performance

Singapore’s central bank tightened monetary settings in July to combat further upside inflation risk. The off-cycle decision followed
the release of economic data, which showed zero economic growth in Q2, but prices picked up in a broad range of goods and services.

The Monetary Authority of Singapore (MAS) announced it would recenter the mid-point of the Singapore dollar nominal effective exchange rate (S$NEER)2 policy band to its prevailing level while keeping the slope and width of the band unchanged. The move set the path to a stronger local dollar in the medium term and may help to slow rising prices in the city.

Meanwhile, the central bank raised the full-year core inflation projection from an earlier forecast of 2.5%-3.5% to 3.0%-4.0% for the year.
Against this backdrop, stocks and bonds recorded strong performances in July. The Straits Times Index rallied 3.5%, while the
iBoxx Singapore Dollar (SGD) Overall Index returned 1.45%—the first monthly gain in 2022.

The investment grade subindex outperformed the high yield subindex by 263 bps this month. Returns from the 10+ year maturity buckets exceeded the returns from the short- and medium-end, and the AAA and AA segments of the overall index outshone other rating buckets.

The sovereign and non-sovereign subindices recorded gains this month. The top performers included long-dated Singapore government bonds and one small corporate bond from the REIT sector. The standout worst-performing bond was the BB rated MAGIC 3.5% Perp bond, which lost 6.10% in July.

The overall index ended the month with a yield of 3.05% and a duration of 6.54 years.

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