iBoxx ALBI Monthly Update: January 2021
December 2020 EOM Commentary
2020 has been an unprecedented year and will go down as one of the most eventful years in history. Stock markets plunged in the early months of 2020 as Covid-19 struck but rebounded swiftly to reach new heights, with economies restarting after lockdowns in most parts of the world. Central bank rates were also cut across the board to spur ailing economies which brought about low yields in global fixed income assets. As a result, some investors have begun to look into the credit space as well as emerging markets for yield pick-up.
On this note, the overall ALBI index, which features several emerging markets, ended 2020 with a year-on-year gain of 9.55%. All markets covered in the index recorded gains for the year, with Indonesia (+15.10%) and India (+12.61%) leading the pack. South Korea was the most muted market, returning 1.01% in the same timeframe.
In December, gains were observed across the yield curve except for the 3-5 years segment of China Offshore and the 7+ years segment of South Korea. The best performing segment was the 10+ maturity bucket (+2.32%), led by Indonesia (+3.97%) and Malaysia (+3.05%). From the FX perspective, apart from HKD, all other local currencies appreciated against the US Dollar.
The overall index yield dropped 3 bps to 2.78% as we ended the year, dragged down by Indonesia (-26 bps) and Malaysia (-15 bps). Notably, the yield of Indonesia fell for the third straight month. Despite the decline, Indonesia remains the highest yielding bond market in the index offering 6.11%. Singapore is the lowest2 at 1.23%.
January 2021 Rebalance
The latest rebalance saw 19 bonds entering and 17 bonds leaving the overall index. For a detailed breakdown of insertions and deletions, please refer to the Appendix.
The individual market weights of iBoxx ALBI are reflected in the chart above and the next scheduled change will be on 28th February 2021 (the March rebalance).
Post rebalance, the index duration has extended by 0.09 to 7.06 years.
All markets saw their duration increase this month, except for the Philippines which shortened by 0.02 years. The largest change was observed for Thailand (+0.27 years) as a large THB 211 bn Thai Government Bond left the index as it approached its last year to maturity. After the rebalance, Thailand overtook South Korea to have the longest duration at 9.34 years1 while China Offshore remained the least sensitive to interest rates with a duration of 3.34 years.