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iBoxx SGD Monthly Update: September 2020
August 2020 End-of-Month Commentary
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.
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