iBoxx USD Asia ex-Japan Monthly Update: January 2021

December 2020 End-of-Month Commentary

December was replete with positive news such as: the passing of a COVID-19 relief package in the U.S., the eventual signing of a Brexit trade deal; and for crypto enthusiasts, Bitcoin breaching $20,000 for the first time.

Whilst the overarching narrative for December focused on rising virus cases and hospitalization rates across the world, major equity indexes continued to make record highs. Building on a low interest rate environment, the vaccine rollout and coordinated fiscal and monetary support, markets are finding comfort to begin 2021.

In December, the USD Asia overall index rose 0.69% after a strong showing (+1.35%) last month. The index yield dropped 10 bps to 2.99% and the index credit spread tightened 13 bps to 217 bps. For comparison, the iBoxx $ Treasuries index fell 0.30% with its yield rising 5 bps to 1.08% over the same period.

USD Asia credits (+0.84%) outperformed sovereigns by 93 bps this month. High yield (+1.86%) had a strong performance with gains delivered across the curve. Within high grade (+0.33%), losses were observed in 7+yr bucket for AAA-rated segment and 10+yr for all other rating segments.

The top 7 markets in the index, by market value, all recorded gains but only India (+1.44%) exceeded 1%.

All corporate sectors closed higher led by Basic Materials, Consumer Services and Financials. All other sectors registered gains below 1%.

In China USD bonds (+0.78%), high yield outperformed high grade, returning 1.99% compared to 0.31%. China Real Estate sector (+1.94%) had another strong month, outperforming China LGFV (+0.25%) and the broad China sector (+0.78%).

Over the past year, China Sovereigns (+8.49%) and China Real Estate (+8.00%) were the best performers, while China LGFV (+4.48%) was the biggest laggard, in the China USD bond universe.

January 2021 Rebalance

The January rebalance added 28 bonds to the index. Mainland China and Hong Kong accounted for 19 bonds, making up over USD 7.88 billion (or 56.7%) of the new notional.

Of the 33 bonds removed from the index, one had defaulted which was issued by Prime Bloom Holdings Ltd, nine were repurchased and the rest had matured in December.

The three fallen angels captured this month were all issued by Chinese local government financial vehicles (LGFVs).

For a detailed breakdown of insertions and deletions, and a list of fallen angels recognised in 2020-2021, please refer to the Appendix in the full commentary.

The overall index duration was little changed at 4.42 years post rebalance.

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Posted 08 January 2021 by Rahul Sharma, Director - Indices, IHS Markit