iBoxx USD Asia ex-Japan Monthly Update: December 2020
News of vaccine breakthroughs propelled the rally in global equity markets this month, overshadowing the impact of renewed virus outbreaks in many countries. The OECD lifted its global economic outlook given the progress on vaccine development, projecting global GDP to rise by just over 4% in 2021 with China accounting for over one-third of the world's estimated pick-up in economic activities.
With over 50% regional exposure to China, the USD Asia overall index closed out the month at new index high of 227.31 (a monthly return of +1.35%). Index yield fell 29 bps to 3.09% while the index credit spread narrowed 27 bps to 230 bps. In the same period, the iBoxx $ Treasuries index gained 0.39% with yield dropping 3 bps to 1.03%.
In November, USD Asia high yield bonds (+2.21%) outperformed USD Asia high grade bonds (+1.09%) and the broad index (+1.35%). For high yield, strong outperformance was observed across the curve except for B-rated & 0-1yr and CCC-rated & 1-3yr buckets, which were dragged down by the TSINGH defaults. For high grade, gains were heavily concentrated in 10yr+ bucket.
The top 7 markets in the index by market value all recorded gains, but only China (+0.61%) and South Korea (+0.63%) finished below 1%.
All corporate sectors closed higher with Industrials, Health Care and Technology being the laggards. Oil & Gas and Consumer Services advanced the most.
Among the China USD bonds (+0.61%), high yield bonds (+1.29%) outperformed high grade bonds (+0.35%) by a wide margin.
The China Real Estate sector continued to rebound after September's loss (-1.35%), delivering 1.55% in November and 5.94% year to date.
China LGFVs (-0.15%) fell and underperformed the China sector (+0.61%) this month.
December 2020 Rebalance
The December rebalance added 32 bonds to the index. Mainland China and Hong Kong accounted for 29 bonds, making up over USD 13 billion (or 92.7%) of the new notional.
Of the bonds removed from the index, four were redeemed in full, three had defaulted in November (all issued by Tsinghua Unigroup) and three were partially repurchased thus becoming ineligible for the index.
Only one fallen angel was captured this month. For a detailed breakdown of insertions and deletions, and a list of fallen angels recognised in 2020, please refer to the full commentary.
Post rebalance, the overall index duration decreased by 0.02 to 4.45 years. Indonesia and Malaysia continue to be the most interest rate sensitive markets in the index with durations of 8.24 years and 7.85 years, respectively.
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