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iBoxx USD Asia ex-Japan Monthly Commentary: June 2022
The month of May featured plenty of extreme swings in financial markets. With inflation uncomfortably high, several central banks announced increases in benchmark rates this month. The widespread regime shift in rate policies pressured valuations across asset classes, which had ballooned for the past decade from record low-interest rates. The 10-year U.S. Treasury yield topped 3.1% in May, the highest since 2018, before ending the month at 2.74%. Rallies were short-lived, as uncertainty in rate policies coupled with recession fear clouded the markets.
Asian USD bonds continued to face downward pressure this month. The iBoxx USD Asia ex-Japan Index fell 0.15% in May, marking its fifth consecutive monthly decline this year. The index showed signs of stabilizing from the rising U.S. interest rates, as the drop in performance this month was smaller than in the previous four months. The index yield (flat at 0.0%) and index credit spread (up 1.8 bps) were little changed at 5.32% and 242 bps, respectively.
This month, the USD Asia IG subindex outperformed its high yield counterpart, returning 0.37% with the spread virtually unchanged. In contrast, the USD Asia HY subindex sank 2.68% as its spread widened by 57 bps, primarily driven by severe losses in the B- and CCC-rated segments across the curve.
Meanwhile, China USD bonds were down 0.37% this month. In May, the Chinese central bank unexpectedly cut its benchmark reference rate for mortgages to aid the ailing property sector. Additionally, another issuer—Sunac China Holdings Ltd—was removed from the China Real Estate subindex (-6.72%) at the month-end index rebalance due to missed coupon payments for its debt obligations.
On the other hand, the USD China LGFV subindex outperformed the broader USD China market this month, returning 0.76% against -0.37%. It currently offers a yield of 4.46% and a duration of 1.66 years.
June 2022 Rebalance
This rebalance, the iBoxx USD Asia ex-Japan Index added 11 eligible bonds from Chinese and Korean markets, bringing in USD 4.9 billion of new notional.
The investment grade (IG) subindex saw about USD 4.5 billion of notional raised from 10 new issues, while the high yield (HY) subindex saw a little over USD 400 million worth of notional from 1 issue.
Of the 37 bonds removed from the index this month:
- 10 were traded flat of accrued interest, all issued by Sunac China Holdings Ltd (a property developer in China); and
- 2 were either redeemed or repurchased and became ineligible for the index
Two fallen angels were captured this month. Both were short-dated, senior USD bonds from the Philippines and Indian markets.
Please refer to the Appendix in the full report for a breakdown of this month's insertions and deletions, and a list of fallen angels and rising stars recognized in 2022.
Post-rebalance, the overall index duration was down slightly to 4.29 years. Markets with the most noticeable change in duration were Hong Kong (up 0.05 years), Indonesia (-0.04 years) and Pakistan (-0.05 years).
Among the largest seven markets in the index, Indonesia (up 0.37%), South Korea (up 0.44%) and the Philippines (up 1.02%) were relative outperformers, while Mainland China (-0.37%) was the worst performer.