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Customer LoginsAugust 2022 End-of-Month Commentary
The recent rally in U.S. equities hit a reset after hawkish comments by the Federal Reserve Chairman Jerome Powell at the Jackson Hole Economic Symposium.
In his speech to investors, Powell indicated that the Fed is committed to raising rates to quell inflation and to bring demand and supply dynamics in better balance. His remarks sparked a sell-off in U.S. stocks and pushed bond yields and the U.S. dollar higher.
For the month of August, the 2-year U.S. Treasury yields rose from 2.90% to 3.45%, while the 10-year U.S. Treasury yields were up 48 bps to 3.15%. Meanwhile, the U.S. dollar came close to a 20-year high against other major currencies.
With U.S. yields rising across the curve in August, the rally of Asian USD bonds in July was short-lived. This month, the iBoxx USD Asia ex-Japan Index fell 0.40%, largely driven by the negative performance of its investment-grade bonds. The overall index yield rose 24 bps to 5.82%, and the overall index spread narrowed 26 bps to 244 bps.
Making up about 85% of the overall index by market value, the investment grade (IG) subindex considerably underperformed the high yield (HY) subindex this month. In the IG segment, losses were seen in the mid-to long-end of the curve. In contrast, the HY subindex generally logged gains across the maturity buckets. Moreover, the HY subindex yield and spread dropped by 75 bps and 137 bps, respectively.
Among the seven largest markets in the index, only Mainland China (up 0.17%) returned a gain, while Singapore (-1.43%), South Korea (-1.30%) and Hong Kong (-1.15%) were the worst performers.
September 2022 Rebalance
This rebalance, the iBoxx USD Asia ex-Japan Index added 11 eligible bonds, bringing in about USD 5.1 billion of new notional.
The IG subindex saw about USD 4.8 billion of notional, raised from 10 new issues, while the HY subindex received USD 300 million worth of notional from one issue.
Of the 36 bonds removed from the index this month:
− 14 traded flat, including 13 bonds from two issuers in the China real estate sector; and
− Five were either redeemed, partially repurchased or exchanged.
Seventeen fallen angels from two issuers were captured this month. All bonds from these issuers have BB ratings in the index.
Please refer to the Appendix in the full commentary 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 fell to 4.15 years. Markets with the most noticeable change in duration were Pakistan (-0.09 years), Indonesia (-0.08 years), Malaysia (-0.08 years), the Philippines (-0.05 years) and Thailand (-0.05 years).
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