iBoxx ALBI Monthly Update: February 2021
January 2021 End-of-Month Commentary
Of late, the markets have been greeted by a wave of optimism. Street analysts predict further economic recovery with more markets reviving against the backdrop of supportive fiscal measures. However, volatility remains a key risk factor. This was evident in January as global equities suffered their worst week since October last year and speculative trading dominated headlines in the US stock market.
In the same light, after a strong 2020 which saw year-on-year gains of 9.55%, the overall ALBI index declined 0.66%. Performance across the eligible markets was mixed. China Offshore (+0.90%) led the gains but losses in some markets, including Indonesia (-1.08%) and Singapore (-0.88%), dragged the index into the red.
FX losses played a part too, as most markets saw their currency depreciate against the US dollar, led by the Korean Won (-2.89%). Apart from China Offshore which saw gains across the yield curve, performance across other markets was a mixed bag. The China Offshore 5-7 maturity segment posted the highest return of 1.35%, while the Singapore 10+ maturity segment declined 2.74%.
Consequently, the overall index yield increased by 7 bps to 2.85%, led by Indonesia (+26 bps) which saw its yield rebound after three months of consecutive decline. Indonesia remains the highest yielding bond market in the index offering 6.37% while Singapore is the lowest at 1.36%.
February 2021 Rebalance
The latest rebalance saw 26 bonds entering and 18 bonds leaving the overall index. For a detailed breakdown of insertions and deletions, please refer to the Appendix in the full commentary.
The individual market weights of iBoxx ALBI are reflected in the chart above and the next scheduled change will be on 28th February 2021 (the March rebalance).
Post rebalance, the index duration has extended by 0.03 to 6.97 years.
All markets saw their duration increase this month, except for Thailand, South Korea and Singapore, which shortened by 0.11, 0.07 years and 0.03 years, respectively. The largest increase was for the Philippines (+0.13 years) as two RPGBs left the index with their maturity falling below 1 year. There were also no new inclusions within this market to offset the change in risk. Post rebalance, Thailand continued to have the longest duration at 9.15 years while China Offshore remained the least sensitive to interest rates with a duration of 3.31 years.
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