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Trending inflation anxiety somewhat subsided in May even though
markets remain cautious; especially around near-term inflation
expectations for those economies that continue to improve.
In the U.S., further out on the curve, the 10-year treasury
yield† hovered around 1.60% this month while the 10s-5s breakeven
curve spread† stayed above 14 bps (as it has done since the end of
April).
Against a backdrop of rising growth expectation and a weaker
dollar, the iBoxx USD Asia ex-Japan index climbed 0.53% in May. The
index yield and spread both fell slightly to 3.28% and 196 bps,
respectively. For comparison, the iBoxx $ Treasures index gained
0.35% with its yield falling to 1.63% over the same period.
Longer duration USD Asia sovereigns outperformed corporates for
the second consecutive month. As in April, but to a lesser extent,
high yield bonds (+0.75%) outperformed high grade bonds (+0.45%) in
May. Strong performance was observed in the CCC segment (+4.19%)
where gains were seen across all maturity buckets.
The top 7 markets (by market value) in the index all posted
gains of less than 1%.
All corporate sectors were higher, with Health Care, Technology
and Telecommunications sectors leading.
China USD bonds rallied (+0.42%), with sovereigns (+0.66%)
outperforming both high grade (+0.35%) and high yield bonds
(0.62%).
The China Real Estate sector's month-onmonth performance fell in
May but continued to outperform the broad China sector. The China
LGFV segment gained +0.95% this month, with strong performance
coming from the high yield (+1.93%) bucket, while high grade LGFV
bonds delivered 0.63%.
June 2021 Rebalance
Thirty-three new bonds entered the index this month, adding
close to USD 143 billion of new notional, the lowest amount so far
this year.
Mainland China and Korea added 23 new issuances, accounting for
almost USD 95.1 billion (or 71.4%) of the new notional.
Of the 28 bonds removed from the index, four were partially
repurchased and became ineligible for the index. Only one bond was
called.
No fallen angel nor rising star was captured last month.
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 4.40 years
post rebalance. Some markets with large duration changes included
India (+0.03 years), Indonesia (+0.03 years) and Malaysia (-0.05
years).
Country index India replaced its matured, USD 300 million bond
from Tata Motors Ltd with a USD 707 million, long-dated bond from
the Utility sector. Indonesian market added three medium-dated
bonds with a combined notional of USD 885 million, as one of its
largest government bonds (USD 2.5 billion in size) matured in
May.
Malaysia expanded its notional base by USD 10 billion, with a
5-year and a 10-year bond from Khazanah Nasional Berhad, a
sovereign wealth fund of the Government of Malaysia, lowering its
country index duration to 8.19 years.
Posted 07 June 2021 by Wilson Mak, Analyst - Indices, IHS Markit
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