iBoxx USD Asia ex-Japan Monthly Update: October 2022

September 2022 End-of-Month Commentary

Volatility in financial markets amplified in September. The S&P 500® (-9.34%) had its worst month since March 2020, and U.S. Treasuries saw large drawdowns, with the 2-year and 10-year yields topping 4.30% and 3.97%, respectively.

The fight against inflation intensified, as global central banks coordinated policy responses to raising benchmark rates. In the U.S., the five-year breakeven inflation rate declined steadily, suggesting inflation expectations may be moderating. However, the combination of rising rates and a persistently inverted yield curve brought a renewed focus on a recession narrative.

Across the Atlantic, the new fiscal stimulus plan announced recently by the U.K. government rattled financial markets. The proposed fresh spending and tax cut raised concerns over the country's higher funding costs, which later sent bond yields higher globally. Meanwhile, the greenback, which is typically regarded as a safe-haven currency for investors in periods of uncertainty, moved up 3.15% this month.

With U.S. yields rising rapidly to high levels in September, Asian USD bonds recorded yet another month of negative performance. As shown in Exhibit 1, the iBoxx USD Asia ex-Japan Index fell 3.43%, as all other major subindices of the overall index moved largely lower.

Moreover, the overall index yield rose 92 bps to 6.74%, and the overall index spread widened 28 bps to 272 bps.

This month, the investment grade (IG) and high yield (HY) subindices both sank into negative territory, though the IG subindex outperformed the HY by a wide margin (196 bps). In the IG and HY segments, losses were generally seen across the curve, with long-end maturity buckets logging the largest casualties. Notably, the HY subindex yield surged by 3 percentage points, and the spread widened by 227 bps.

Among the seven largest markets in the index, Indonesia and the Philippines were the worst performers, registering losses greater than 5% this month.

October 2022 Rebalance

This rebalance, the iBoxx USD Asia ex-Japan Index added 15 eligible bonds, bringing in about USD 8.8 billion of new notional.

The IG subindex saw about USD 8.2 billion of notional, raised from 13 new issues, while the HY subindex received USD 600 million worth of notional from 2 issues.

Of the 40 bonds removed from the index this month, two traded flat (both belonging to the China Real Estate sector) and three were exchanged.

Two fallen angels and one rising star were captured this month. These bonds belong to two issuers from the Hong Kong market.

Please refer to the Appendix 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 remained virtually flat. Markets with the most noticeable change in duration were Malaysia (-0.12 years), India (up 0.04 years), South Korea (up 0.04 years), Taiwan (up 0.04 years), Indonesia (up 0.05) and Hong Kong (up 0.06 years).

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.