iBoxx USD Asia ex-Japan Monthly Update: October 2021

September 2021 End-of-Month Commentary

The Asian dollar bond market largely traded to the downside in September. Amid the challenge of the delta-variant spread, Asian dollar bonds having rebounded in August, faced major headwinds this month that sapped away all their gains in 2021.

Globally, inflation concerns and the prospect of Fed tapering continue to weigh on investor sentiment this month. This led to rising US treasury yields and a higher US dollar against most Asian currencies. Domestically, Evergrande Group missed coupon payments on its offshore dollar bonds, triggering a 30-day grace period before a formal default. A potential credit failure from the Chinese property giant could rattle not only the economy of China but spread to regional markets and beyond.

Under these headwinds, the iBoxx USD Asia ex-Japan index fell 1.64%, the largest monthly loss since March 2020. The average daily spread-to-yield ratio dropped -2.5 percentage points (ppts) to 62.2% in September.

This month, Asian USD sovereigns and corporates both underperformed the broad index that posted a -1.64% loss. High grade (-0.89%) declined across all rating segments, with severe losses observed in long duration bonds. Meanwhile, high yield (-4.24%) slumped as negative sentiment weighed on heavily-indebted issuers in the Chinese Real Estate sector.

In the corporate space, no sector recorded gains with Financials, Consumer Services and Technology suffering the largest losses.

The top 7 markets in the index (by market value) all fell in September, with the worst performer being China, followed by Indonesia and the Philippines.

With a market value weight of 23% to the China sub-index and 12% to the overall index, the China Real Estate sector tumbled -7.94%, dragging down the broader indices. All bonds that traded flat this month came from this
sector.

After three quarters into 2021, the overall index has returned -0.98% year-to-date. It currently has a yield of 3.40%.

October 2021 Rebalance

Fifty-five new bonds entered the index in September. Mainland China, Hong Kong and Macao added 41 new issuances, making up over USD 23 billion (or close to 76%) of the new notional.

Of the 50 bonds removed from the rebalance:

• 13 were traded flat of accrued interest, including 9 bonds from Evergrande Group and 4 from its subsidiary's financing vehicle.
• 4 bonds were either redeemed or partially repurchased, and became ineligible for the index

Three fallen angels and three rising stars 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 0.04 to 4.55 years. Markets with the most noticeable change in duration were Macao (+0.21 years), Thailand (+0.16 years), Indonesia (+0.10 years) and Singapore (+0.10 years).

In Macao, Sands China re-profiled its debt by replacing a short-term bond with three mid to long- dated
issuances, with a combined notional size of USD 1.95 billion.

Thailand brought in a new USD 1 billion, 10-year corporate bond, while Indonesia added a new sovereign bond and two corporate bonds, at an aggregated notional size of USD 1.57 billion.

Singapore added two medium-dated, AA-rated corporate bonds, replacing four other corporate bonds that were either matured or repurchased in September.

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Posted 06 October 2021 by Wilson Mak, Analyst - Indices, S&P Dow Jones Indices