iBoxx USD Asia ex-Japan Monthly Update: July 2022
June 2022 End-of-Month Commentary
Economic headwinds from high inflation and the impact of monetary contraction policies continued to pressure financial markets in June. In the U.S., investor sentiment shifted after the Federal Reserve delivered a rate hike of 75 bps, a significant increase not seen since 1994. The underlying narrative has broadened from concerns around high inflation and aggressive rate hikes to also include growth worries and recession anxiety. The 2s10s spread1 of the U.S. Treasury curve flattened dramatically in June, perhaps reflecting an outlook for weaker economic growth on the horizon. Both stocks and bonds in developed markets declined this month.
The iBoxx USD Asia ex-Japan Index dropped 2.28% in June and 10.2% YTD. Moreover, the index yield rose 0.52 bps to 5.83%, and the index spread widened 32 bps to 273 bps. Additionally, the cost of hedging this market from credit defaults, as tracked by iTraxx Asia exJapan Index (5Y), has risen to levels2 last seen in April 2020.
This month, negative performances were generally observed across maturity buckets. While the investment-grade (IG) and high-yield (HY) subindices fell in the red, the IG subindex outperformed its HY counterpart by 0.75%. Notably, losses increased in severity when descending from the BBB segment into the HY rating segments.
Optimism around the reopening in China and a series of measures by the Chinese authorities to support the country's property sector have offered little help to rekindle the China USD bond market thus far. As a result, the China USD subindex, the largest country subindex by market value in the iBoxx USD Asia ex-Japan Index, retreated again in June, this time by 2.0%. Meanwhile, two more issuers—Jingrui Holdings Ltd and Shimao Group Holdings Ltd—were removed from the China Real Estate subindex (-9.93%) as their bonds traded flat this month.
The USD China LGFV subindex outperformed the broader USD China market, returning a loss of 1.08%. As of the end of June, it offered a yield of 4.87% with a duration of 1.71 years.
This rebalance, the iBoxx USD Asia ex-Japan Index added 23 eligible bonds, bringing in nearly USD 13.3 billion new notional.
The IG subindex saw about USD 12.0 billion of notional raised from 20 new issues, while the HY subindex received USD 1.3 million worth of notional from three issues.
Of the 41 bonds removed from the index this month:
This month, 6 of the 16 senior bonds from Country Garden Holdings Co Ltd from the Chinese market were captured as fallen angels, while one rising star was identified from the Indian market.
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 stayed virtually flat. Markets with the most noticeable change in duration were Singapore (up 0.07 years), Malaysia (up 0.03 years), Indonesia (-0.03 years) and Thailand (-0.04 years).
The iBoxx USD Asia ex-Japan China added 10 short-dated corporate bonds with an aggregated notional of USD 4.85 billion, all of which will mature before the end of 2025.
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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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