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Equity markets saw renewed volatility after making fresh record
highs in recent months. Major US equity indexes pulled back in
January, as concerns over vaccine distribution setbacks and
potential new lockdowns weighed on the recovery, prompting
investors to rebalance their long-term economic outlook given the
near-term challenges.
USD bond markets in Asia, on the contrary, had rallied modestly
with comparatively less volatility over the same period. The iBoxx
USD Asia ex-Japan index closed marginally higher (+0.09%) in
January, losing momentum after posting a gain of 0.69% in December.
The index yield rose 4 bps to 3.03% and the index credit spread
tightened 9 bps to 208 bps. While the iBoxx $ Treasuries index
yield rose 15 bps to 1.23% this month, the USD Asia bonds to $
Treasuries spread had narrowed 11 bps to 180 bps.
This month, longer duration USD Asia sovereigns outperformed
corporates (+0.07%) by 15 bps. High grade bonds (+0.06%) finished
higher overall but did endure losses in the long end of the curve
(mostly concentrated in the 10+yr bucket in the AAA to A-rated
segments). High yield bonds (+0.19%) fared a little better with
notable gains largely driven by the CCC-rated segment.
The top 7 markets in the index, by market value, all recorded
gains except for Mainland China (-0.05%) and Indonesia
(-0.06%).
Performances in corporate sectors were mixed with Basic
Materials and Consumer Goods leading while Consumer Services and
Oil & Gas finished lower.
In China USD bonds (-0.05%), high grade (+0.11%) gained while
sovereigns and high yield (-0.46%) lagged, dragging down China
bonds into negative territory. The China Real Estate sector fell
for the first time since September 2020, pulling its yield up to
6.80%. China LGFV (+0.52%) gained for the second consecutive month,
outperforming the broad China universe by 57 bps.
February 2021 Rebalance
Seventy new bonds were added to the index in February. Mainland
China and Korea dominated the new issuances with 54 bonds, making
up over USD 28 billion (or 73.8%) of the new notional.
Of the 23 bonds removed from the February rebalance, 6 bonds
were redeemed or partially redeemed and became ineligible for the
index. The rest had matured in January.
One fallen angel was captured and it belonged to SK Innovation
Co Ltd. No rising star was identified last month.
For a detailed breakdown of insertions and deletions, and a list
of fallen angels recognised in 2021, please refer to the Appendix
in the full commentary.
The overall index duration edged higher to 4.42 years post
rebalance. Macao had the largest duration increase of 0.25 years,
after the inclusion of 4 medium-dated bonds from the Travel and
Leisure sector, with an aggregated notional of USD 2 billion.
Indonesia, Malaysia, Thailand and the Philippines are markets with
the highest rate exposures in the index, each with a duration of
over 6 years.
Posted 04 February 2021 by Rahul Sharma, Director - Indices, IHS Markit
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