iBoxx USD Asia ex-Japan Monthly Update: February 2021
January 2021 End-of-Month Commentary
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.
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