iBoxx USD Asia ex-Japan Monthly Commentary: February 2023

February saw losses across major equity and fixed income markets, a reversal of the gains made in January. The S&P 500® dropped 2.61% as market participants fret about the possibility of higher interest rates backed by persistent inflation and a strong labor market. At the same time, the 10-2 Year Treasury Yield Spread —a recession indicator—fell to -0.89%, its lowest level since the 1980s, sending mixed signals to the market.

Against this backdrop, U.S. Treasuries—represented by the iBoxx $ Treasuries—also gave up most of its January gains and lost 2.44% in February.

In Asia, the reopening story of China continued to unfold as the National Bureau of Statistics of China reported that its official manufacturing purchasing managers' index rose to 52.6 in February, (up from 50.1 in January), its highest in more than 10 years. In Hong Kong, it was also recently announced that the mask mandate would end effective March 1, 2023, a move that might attract more visitors and businesses back into Hong Kong.

As shown in Exhibit 1, the strong positive performance of 3.18% in January was pared back in February, with the overall index falling 1.38%. Losses were spread across all rating categories, with investment grade retreating 1.38% and high yield declining 1.35%. The index yield rose 0.42 percentage points to 6.16%, and the index spread continued to narrow by 4 bps to 195 bps.

Despite the generally negative returns across most markets in February, high yield bonds and China LGFVs have moved into positive territory on a one-year rolling basis; the other categories remain in negative territory.