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Inflation has been a key recent topic with employment statistics
steadily improving and economies are restarting in most parts of
the world. However, the crucial question is whether the rise in
consumer prices will be sustained or is simply due to abrupt
recoveries in certain sectors (such as travel, hospitality and
brick-and-mortar retail - off the back of mass vaccination
campaigns). So far, the inflation story has indeed played out in
the bond markets with the iBoxx TIPS Inflation-Linked Index
outperforming the iBoxx $ Treasuries index by 4.39%
year-to-date.
In Asia, there are not many markets with "linkers". However,
global investors who are concerned about inflation may consider
Asian local bond markets for their diversification benefits.
Against US Treasuries, for example, the iBoxx ALBI index - which
consists largely of government bonds (80%) from 10 eligible Asian
markets - has a low and negative recent correlation of -0.10
(monthly returns correlation from Jan 2020-Jun 2021).
From a June performance perspective, the index snapped its
two-months positive streak with a -1.13% return over the month. The
loss was primarily contributed to by FX losses against the US
dollar as only India and Singapore were in the red in their
respective local markets. Year-to-date, the index has lost
3.09%.
Losses were observed across the yield curve in the aggregated
index. In the local markets, performance was a mixed bag, with the
highest gains seen in the 7-10 and 10+ maturity segments of the
Philippines (+1.93%) and South Korea (+1.83%), respectively.
The overall index yield rose 1bp to 3.19% in June. India (+15
bps) and China Onshore (+4 bps) saw the highest increase, while the
Philippines (-14 bps) and Thailand (-4 bps) posted declines. India
has overtaken Indonesia to be the highest yielding bond market in
the index offering 6.60%, while Hong Kong remains the lowest
yielding market in the index at 1.69%.
July 2021 Rebalance
The latest rebalance saw 31 bonds entering and 18 bonds leaving
the overall index. Please refer to the Appendix for a detailed
breakdown of insertions and deletions.
The base market weights of the index will remain consistent
until 31 Nov 2021 when a new set of weights will be applied to the
eligible markets.
The index duration has lengthened by 0.05 to 6.83 years after
the recent rebalance. Most markets saw their duration increase this
month, with the largest increase coming from South Korea (+0.36
years). Singapore is the only market with a drop in duration (-0.09
years). South Korea currently is the market with the longest
duration (9.11 years1 ) while China Offshore remained the least
sensitive to interest rates with a duration of 3.06 years.
Posted 06 July 2021 by Kangwei Yang, Director - Indices, S&P Dow Jones Indices
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