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iBoxx ALBI Monthly Update: March 2021
February 2021 End-of-Month Commentary
As Covid-19 vaccination drives rolled out across the globe, prospects of strong economic growth induced inflationary fears, resulting in a global fixed income sell-off towards the end of the month. On the penultimate business day in February, the 10-year treasury yield exceeded 1.5% for the first time in a year.
The Asian local currency bond market was not spared as the overall ALBI index declined 1.84% - its worst monthly performance since the March 2020 rout. All markets except China Offshore (+0.02%) posted negative returns, with Thailand (-3.10%), Singapore (-2.25%) and India (-2.17%) being the worst hit. In the same period, the US dollar appreciated against most local currencies as well, led by the Indonesian Rupiah (-1.47%).
Even though returns deteriorated across the yield curve in most markets, the largest losses were concentrated in the longest end of the curve. Hong Kong, Singapore and Thailand saw declines of more than 5% in the 10+ maturity segment, while India and Malaysia posted drops in excess of 3% in the same long-end bucket.
Index yields were bumped up across the board as a result. The overall index yield increased by 25 bps to 3.10%, led by India (+39 bps) and Thailand (+35 bps). Indonesia remains the highest yielding bond market in the index offering 6.66% while Singapore is the lowest at 1.66%.
March 2021 Rebalance
The latest rebalance saw 27 bonds entering and 23 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 updated this month and are reflected in the chart above. The next scheduled change will be on 31st May 2021.
The index duration has extended by 0.07 to 6.86 years after the recent rebalance. All markets saw their duration increase this month, except for small decreases in the Philippines (-0.04 years), Hong Kong (-0.03 years) and Indonesia (-0.01 years). The largest increase was for Singapore as three bonds left the index with their maturity falling below 1 year, including an SGD 900 million issue from HDBSP. There was only one SGD bond entering the index - a 350 million upsized bond from Shangri-La Hotel Limited originally issued in 2020.
After the rebalance, South Korea overtook Thailand to have the longest duration at 8.87 years while China Offshore remained the least sensitive to interest rates with a duration of 3.24 years.
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