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Risky assets generally did well over August across the globe,
supported by improving market sentiment that was largely driven by
vaccine optimism. Most major stock market indices observed gains,
volatility was fairly stable and in the credit world, spreads
contracted (including in Asia, as evidenced by iTraxx Asia Ex-Japan
index spreads).
A more specific story this month was the Federal Reserve's
update on its Statement on Longer-Run Goals and Monetary Policy and
the move to average-inflation targeting i.e. if inflation was
persistently under 2% for some period, then the Fed would allow
inflation to overshoot for some time.
The market implied this to mean lower short term US rates for
longer but higher longer term inflation expectations. Risk-on and
the Fed announcement together saw government bond curves
bear-steepen in many markets by the end of the month.
All this resonated in the Singapore fixed income market over
August. Long dated SGD government bonds fared particularly poorly
contributing to the 0.96% loss experienced by the overall iBoxx SGD
index. Whereas non-sovereign SGD debt delivered a slight gain
(0.08%) and the shorter duration (compared to IG) high yield index
made 0.69%.
As of 31 August 2020, the overall index offered a yield of 1.41%
(up 0.17 percentage points from the previous month-end) with a
duration just over 7 years.
September 2020 Rebalance
The September rebalance index added one new bond to the index;
an Olam International issue that was noteworthy for two
reasons.
Firstly it was Olam's first public market SGD issuance since
2017 and secondly the syndicated bond issuance was handled
digitally, perhaps heralding the wider use of smart contracts and
distributed ledger technology in the Asian fixed income issuance
markets going forward.
No bonds were removed from the index at the September
rebalance.
Please refer to the table in the full commentary for rating
changes observed at the September rebalance.
Posted 07 September 2020 by Rahul Sharma, Director - Indices, IHS Markit
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
