iBoxx ALBI Monthly Update: December 2020

November 2020 End-of-Month Commentary

Promising Covid-19 vaccine news stimulated surges in the equities markets in November, even as infections rose in most parts of the world. From a fixed income perspective, the 10-year US treasury yield declined towards the end of the month as some investors swooped for safer assets with governments initiating new lockdowns.

In Asia, the overall ALBI index gained 2.17% as we ended the penultimate month of 2020 with most markets in the green, with FX gains across all markets against the dollar playing a significant role. Indonesia (2.82%) and India (0.84%) had the best performance, while Malaysia (-1.17%), South Korea (-0.71%) and Singapore (-0.17%) were the only markets with negative returns.

Several markets saw gains across the yield curve, including China Onshore, Hong Kong, India, Indonesia, the Philippines and Thailand. Longer tenure bonds from Indonesia caught the eye with returns of more than 3% in the 7-10 and 10+ maturity buckets. Malaysia, on the other hand, posted losses across the yield curve.

The overall index yield remained unchanged for the second month running at 2.81%. Malaysia (19 bps) and South Korea (9 bps) saw the highest yield uptick, while Indonesia's yield fell the most for the second straight month (-36 bps). Despite the decline, Indonesia remains the highest yielding bond market in the index offering 6.36%. Singapore is the lowest at 1.24%.

December 2020 Rebalance

The latest rebalance saw 32 bonds entering and 23 bonds leaving the overall index. For a detailed breakdown of insertions and deletions, please refer to the Appendix in the full commentary.

The individual market weights of iBoxx ALBI are changed this month and are reflected in the chart above. The next scheduled change will be on 28th February 2021 (the March rebalance).

The index duration is unchanged post rebalance at 7.00 years.

With the exception of Hong Kong and Singapore, all other markets saw their duration increase this month. The largest changes this month were observed in China Offshore (+0.09 years) and India (+0.09 years). After the rebalance, South Korea continues to have the longest duration at 9.05 years while China Offshore remains the least sensitive to interest rates with a duration of 3.33 years.

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Posted 07 December 2020 by Rahul Sharma, Director - Indices, IHS Markit