iBoxx ALBI Monthly Update: January 2022
December 2021 Commentary
2021 was another year of twists and turns as we marked the end of the second year of the Covid-19 pandemic. We witnessed the emergence of the Delta variant (followed now by Omicron), chaotic upswings and crashes of cryptocurrencies, inflationary pressures with world economies rebounding (as we increasingly learned to live with Covid), as well as the unfolding of the real estate crisis in China in the later stages of the year.
Equity markets rallied - the EMIX All World index returned 18.18% year-on-year as of 31 Dec 2021 - as the bulls took centre stage. To combat inflation amidst buoyant market sentiments, the Federal Reserve and central banks around the world began to draw up countermeasure plans, including expectations of rate hikes in 2022. The iBoxx TIPS Inflation-Linked Index ended the year with nominal returns of 5.91%, while the iBoxx US Treasuries index returned -2.47%.
In Asian fixed income, the iBoxx Asian Local Bond Index (unhedged in USD) ended the year on a positive note as it returned 0.55% over December, even though it recorded a loss of -3.18% for the full year. China Onshore and Indonesia were the standout performers for 2021 as they returned 5.72% and 4.83% year-on-year, respectively. Thailand (-4.35%) and Singapore (-4.06%), were the worst performers.
In local currency terms for December, both China Onshore and China Offshore saw gains across the yield curve. The highest gains, however, were seen in the 10+ maturity segments of Hong Kong (1.27%) and the Philippines (1.19%). India was the only market that saw declines across maturities, while the see-saw continues for South Korea 10+: the poorest segment for October, the best for November, and then the worst again for December (-1.28%).
Through December, the overall index yield increased by 4 bps and closed the year at 3.29%. Over the course of 2021, the overall index yield gained 51 bps. The largest year-on-year uptick was observed in the Philippines (+102 bps) while the biggest fall was seen in China Onshore (-39 bps). Notably, only China Onshore and China Offshore saw yield declines in 2021. India remains the highest yielding bond market in the index offering 6.67%, while Hong Kong ended the year (1.98%) as the lowest yielding market in the index.
January 2022 Rebalance
The latest rebalance saw 16 bonds entering and 22 bonds leaving the overall index. Please refer to the full report for a detailed breakdown of insertions and deletions.
As announced in the 2021 Asian Annual Index Review results, an annual weight change has been applied on the individual markets in the index on 30 November 2021. The latest weights are updated in the full report.
The index duration lengthened by 0.08 to 6.86 years after the recent rebalance. All markets except Singapore (-0.02 years) and Indonesia (-0.01 years) saw their duration increase this month, with the largest increase coming from Thailand (+0.20 years). Effectively, South Korea currently has the longest duration (9.17 years) while China Offshore remains the least sensitive market to interest rates with a duration of 2.95 years.
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