iBoxx USD Asia ex-Japan Monthly Update: August 2021

July 2021 Performance

China's unexpected move to ease monetary policy in July fueled concern on the loss of momentum in the economy. With the government's continued regulatory probe on mega-cap technology companies, and recently on the private education sector, cautious sentiment clouded the Chinese market. The China USD bonds in the index declined -1.22%, the most since the beginning of the pandemic in 2020.

With over 50% exposure to China, the USD Asia overall index fell (-0.47%) in July, and was down more than 1% in the last two weeks of the month. The index yield and spread widened by 9 bps and 27 bps, respectively. In contrast, the U.S. 10-year treasury yield had dropped steadily over the month, falling 21 bps to 1.24%.

This month, Asia USD sovereigns outperformed credits by 1.14%. High grade (+0.52%) delivered gains across the curve in general, but high yield suffered significant losses (-3.81%) with major causalities recorded across the entire B-rated segment.

Within the top 7 markets (by market value) in the index, only China (-1.22%) and India (-0.13%) registered losses while all other markets were in the green.

In the corporate space, Financials was the worst returning laggard, followed by Consumer Services and Basic Materials. All other sectors recorded gains.

With over 20% weight (by market value) in the China USD space, the China Real Estate sector sank -6.69% in July, largely contributing to the fall of the overall index (-0.47%) and its China sub-index (-1.22%).

Conversely, China LGFV (+0.70%) outperformed this month, with both its high grade (+0.43%) and high yield (+1.44%) segments yielding positive returns.

August 2021 Rebalance

Sixty-one new bonds entered the index in August. Mainland China, Hong Kong SAR and South Korea added 53 new issuances, making up over USD 223 billion (or 78%) of the new notional.

Of the 30 bonds removed from the rebalance:

• three (2 from China and 1 from India) were traded flat
• two were called
• six were either exchanged, redeemed or repurchased, and became ineligible for the index

One fallen angel from India and one rising star from Singapore were captured this month.

Please refer to the full commentary for a breakdown of this month's insertions and deletions, and a list of fallen angels and rising stars recognised in 2021.

Post rebalance, the overall index duration rose 0.06 to 4.55 years. Markets with the most noticeable change in duration were Mongolia (+1.26 years) and the Philippines (+0.46 years).

The Mongolian government repurchased a short-dated bond in July, while issuing a 5-year and a 10-year bond, each with a notional of USD 500 million. Meanwhile, the government of the Philippines added two very long-dated bonds to its notional base, with a combined notional of USD 3 billion.

In accordance with the U.S. Executive Order 13959, a total of 4 bonds (2 issued by Proven Glory Capital Ltd and 2 by Proven Honour Capital Limited) are excluded from the Restricted version of the index in August. The issuers of these bonds are offshore financing vehicles of the Huawei Technologies Co. Ltd.

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Posted 05 August 2021 by Wilson Mak, Analyst - Indices, S&P Dow Jones Indices