iBoxx USD Asia ex-Japan Monthly Update: August 2022
July 2022 End-of-Month Commentary
Several central banks raised their policy rates in July, as inflationary impulses accelerated and became more broad-based globally. In the U.S., the Federal Reserve (Fed) delivered another 75 bps rate hike at the July meeting. Recently released data indicated that the U.S. economy may have hit a technical recession after consecutive quarters of negative GDP growth. Subsequently, stocks and bonds rallied moderately on the assumption of a Fed pivot toward a more gradual monetary tightening policy. But the visibility of the near-term path of inflation and growth remained uncertain due to external factors such as supply chain disruptions and geopolitical tensions. However, the path of the Fed policy, as emphasized by Fed Chair Jerome Powell, should be dependent on economic data.
Returns of Asian USD bonds turned positive in July, with the iBoxx USD Asia ex-Japan Index gaining 0.44%, the first positive monthly index performance since December last year. The index yield fell 0.25 bps to 5.58%, and the index spread narrowed 2 bps to 271 bps.
This month, the investment grade (IG) subindex considerably outperformed the high yield (HY) subindex by 2.11%. In the IG segments, significant gains were seen in long maturity buckets. In the HY segments, losses were generally observed across the curve, except for the 5-7 year maturity bucket.
In China, home buyer sentiment remained weak, as home sales declined 39.7% in July from the same period last year. The mortgage boycott crisis added more bad news to the beleaguered property sector, which slumped 11.84% this month (as gauged by the China Real Estate subindex). Four property developer issuers were removed from the index, as their bonds traded flat this month.
The USD China LGFV subindex outperformed the broader USD China market (-0.95%), returning a loss of 0.03%. As of the end of July, it offered a yield of 5.05% with a duration of 1.73 years.
August 2022 Rebalance
This rebalance, the iBoxx USD Asia ex-Japan Index added 20 eligible bonds, bringing in about USD 8.7 billion new notional.
The IG subindex saw about USD 8.45 billion of notional, raised from 19 new issues, while the HY subindex received USD 263 million worth of notional from one issue.
Of the 50 bonds removed from the index this month:
- 17 traded flat of accrued interest, including one bond from a consumer retailer in India and the rest from issuers in the China real estate sector; and
- Four were either partially repurchased or exchanged.
Two rising stars were captured this month based on the iBoxx implied credit rating methodology. Both were senior USD bonds from the Chinese market, with one being issued by a local government financing vehicle.
Please refer to the Appendix in the full commentary for a breakdown of this month's insertions and deletions, and a list of fallen angels and rising stars recognized in 2022.
Post-rebalance, the overall index duration rose slightly to 4.31 years. Markets with the most noticeable change in duration were Indonesia (up 0.09 years), Malaysia (up 0.04 years) and Singapore (up 0.04 years).
The majority of bonds that were added to the iBoxx USD Asia ex-Japan China this month were short dated, with the exception of two bonds issued by Lenovo Group Ltd, which have an issuance size of USD 625 million each and have maturities beyond 2027.
The additions to the iBoxx USD Asia ex-Japan South Korea were also short dated, all of which will mature before the end of 2027, and most of which are small issuance of USD 300 million.
In Taiwan, TSMC Global Ltd issued two AA rated senior bonds in late July, with a combined notional size of USD 1.0 billion. The issuer now has 16 bonds in the Taiwan subindex and an aggregated notional of USD 15.5 billion.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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