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U.S. markets remained cautiously optimistic in June, with
volatility stemming from concerns around inflation and central-bank
policy. As gauged by positive data, the U.S. economy continued to
improve but at a pace inadequate to warrant the Fed to accelerate
its bond purchase tapering timeline. Meanwhile, the U.S. treasury
curve flattened as the 2s10s spread narrowed 24 bps to 120 bps, and
the dollar advanced higher.
Asian economies also exhibited positive momentum, with the
regional IHS Markit PMI for May remaining above 50, which signals
economic expansion. However, the risk appetite for USD Asia
corporate bonds was mixed, where yield change was mostly driven by
spread change for high yield bonds (+0.71% change in yield and +62
bps in spread), but not so for high grade.
This month the iBoxx Asia ex-Japan index gained 0.24%.
Longer-dated investment grade bonds made strong gains, but the
overall index return was largely dragged down by B and CCC-rated
high yield bonds, which registered severe losses.
Within the top 7 markets (by market value) in the index, only
China (-0.10%) returned a loss while all other markets performed
well with Indonesia (+1.31%) leading the pack.
In the corporate space, Basic Materials, Oil & Gas and
Technology sectors were the best performers. Financials is the only
sector leading on the downside.
China USD bonds (-0.10%) continued their downward trend in 2021,
after a small bounce in May. The June loss was solely contributed
to by bonds in the China Real Estate sector, which declined
2.70%.
After a volatile first half of 2021, marked by a 1.20% drop in
Q1 and a 1.13% rally in Q2, the overall index has returned 0.10%
year-to-date and currently has a yield of 3.27%.
July 2021 Rebalance
Sixty-two new bonds entered the index in July. Mainland China,
Hong Kong SAR and Indonesia added 48 new issuances, making up over
236 billion (or 76%) of the new notional.
Of the 27 bonds removed from the rebalance:
two (from the same issuer in the China real estate sector) were
traded flat
five were called
eight were redeemed or repurchased (either partially or in
whole) and became ineligible for the index
There were four fallen angels captured this month (all belonged
to the China financial sector).
Please refer to the Appendix for a breakdown of this month's
insertions and deletions, and a list of fallen angels and rising
stars recognised in 2021.
The overall index duration moved slightly higher to 4.44 years
post rebalance. Some markets with large duration changes included
Indonesia (+0.08 years), Malaysia (-0.09 years) and South Korea
(+0.07 years).
Malaysia expanded its notional base by USD 47.5 billion of
long-dated bonds, after three of its bonds, with combined notional
of USD 750 million, were either called or repurchased last
month.
South Korea added 6 new bonds, all A-rated or above, with a
total notional of USD 3.2 billion. Five of these bonds are short to
medium-dated while the remaining one matures beyond 2041.
Posted 06 July 2021 by Wilson Mak, Analyst - Indices, S&P Dow Jones Indices
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