iBoxx ALBI Monthly Update: October 2020

September saw a dovish guidance on core inflation from the Federal Reserve and an indication that it would keep interest rates at near zero levels until the end of 2022. With low yields likely to persist, the hunt for yield brought investors to look beyond government debt for additional income.

The overall ALBI index was little changed month-on-month, gaining 0.22% in September. Specifically, the credit segment of the index returned 0.60%, outperforming government debt (+0.15%). Performance across Asian fixed income markets was varied. Markets that made gains were led by South Korea (+1.10%) and Singapore (+0.87%). On the other side of the distribution, the Philippines and Malaysia posted -0.91% and -0.45%, respectively.

The highest gains and losses across ALBI markets were concentrated in the long-end segment of the curve. The 10+ segments of China Offshore (2.04%) and South Korea (1.97%) posted the highest gains, while the same maturity bucket of the Philippines (-2.22%) and China Onshore (-1.47%) saw the worst returns.

From a yield perspective, the overall index yield fell 3 bps to 2.81%. This was led by yield declines in South Korea (-10 bps) and Singapore (-10 bps) to 1.45% and 1.27%, respectively. Indonesia remains the highest yielding bond market in the index offering 6.95%. Singapore, on the other hand, is the lowest.

October 2020 Rebalance

The latest rebalance saw 33 bonds entering and 22 bonds leaving the overall index. For a detailed breakdown of insertions and deletions, please refer to the full commentary.

The individual market weights of iBoxx ALBI are reflected in the full commentary. The next scheduled change will be on 30 November 2020 (the December rebalance).

The index duration increased by 0.06 years to 7.04 years post rebalance. Most markets saw their duration increase this month, apart from the Philippines (-0.02 years). After the rebalance, South Korea continues to have the longest duration at 9.26 years while China Offshore remains the least sensitive to interest rates with a duration of 3.24 years.

SEE FULL REPORT HERE

Posted 06 October 2020 by Rahul Sharma, Director - Indices, IHS Markit