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iBoxx ALBI Monthly Update: September 2021
August 2021 EOM Commentary
Despite the proliferation of the Covid-19 Delta variant across the world, investors seemed to adopt a risk-on attitude in August. Equity markets rallied and high yield bonds outperformed their investment grade counterparts. Also, the topic of inflation was back on the agenda but more so in Europe this time, as Germany and France saw inflation climbing to 13 and 3-year highs, respectively. Sensitive to both real yields and inflation indexation, the iBoxx Global Inflation-Linked index gained 0.59% in August.
The Asian local currency fixed income market - represented by iBoxx ALBI - is often seen by some as a diversifier to high grade developed markets bonds. Amidst the rally of riskier assets, iBoxx ALBI returned 0.87% in August, led by Indonesia (1.32%) and India (1.22%). The market with the highest credit quality in the index, Singapore, posted the worst result (-0.65%).
Performance along the curve was a mixed bag across the markets in iBoxx ALBI. Some markets - namely, China Offshore, China Onshore, India, Indonesia and Thailand - saw gains across the yield curve, while others - namely, Hong Kong, the Philippines, Singapore and South Korea - saw losses in the long end of the curve. Additionally, for the first time in three months, most local currencies appreciated against the dollar.
The index yield was 3.07% at August end. The Philippines (3.04%) had an 11 bps increase in yield, while Indonesia (6.28%) declined 12 bps. India continues to be the highest yielding bond market in the index offering 6.56%, while Hong Kong, at 1.58%, remains the lowest yielding market in the index.
September 2021 Rebalance
The latest rebalance saw 35 bonds entering and 27 bonds leaving the overall index. Please refer to the Appendix for a detailed breakdown of insertions and deletions.
The weight of individual markets in the index will remain consistent until 31 Nov 2021 when an annual weight change is applied to the eligible markets.
The index duration lengthened by 0.06 to 6.90 years after the recent rebalance. Most markets saw their duration increase this month, with the largest increase coming from China Onshore (+0.13 years) - as two large CGBs above CNY 250 bn entered their final year to maturity and left the index. Thailand (-0.03 years) and Singapore (-0.02 years) are the only markets with decreases in duration. Currently, South Korea has the longest duration (9.24 years ) while China Offshore remains the least sensitive market to interest rates with a duration of 3.04 years.
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