May 2022 Commentary
The month of May featured plenty of extreme swings in financial markets. With inflation uncomfortably high, several central banks announced increases in benchmark rates this month. The widespread regime shift in rate policies pressured valuations across asset classes, which had ballooned for the past decade from record low-interest rates. The 10-year U.S. Treasury yield topped 3.1% in May, the highest since 2018, before ending the month at 2.74%. Rallies were short-lived, as uncertainty in rate policies coupled with recession fear clouded the markets.
Asian USD bonds continued to face 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 from the rising U.S. interest rates, as the drop in performance this month was smaller than in the previous four months. The index yield (flat at 0.0%) and index credit spread (up 1.8 bps) were little changed at 5.32% and 242 bps, respectively.
This month, the USD Asia IG subindex outperformed its high yield counterpart, returning 0.37% with the spread virtually unchanged. In contrast, the USD Asia HY subindex sank 2.68% as its spread widened by 57 bps, primarily driven by severe losses in the B- and CCC-rated segments across the curve.
