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iBoxx ALBI Monthly Update: July 2021

06 July 2021 Kangwei Yang

June 2021 EOM Commentary

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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