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iBoxx USD Asia ex-Japan Monthly Update: March 2021
February 2021 End-of-Month Commentary
The sharp rise in U.S. Treasury bond yields in late February rattled the financial markets. Real yields† moved up by 28 bps to -0.68% in a single month, reflecting the prospect of a strong economic recovery ahead. As the cost of capital surged along with concerns of a (faster than initially expected) reflation trend forming, investors recalibrated their views on asset valuations.
The impact of rising yields also spilled over to the USD bond markets in Asia. The iBoxx USD Asia ex- Japan index fell (-0.74%) in February, for the first time since last October. The index yield rose 18 bps to 3.21% (while the index credit spread narrowed 11 bps to 196 bps). In the same period, the iBoxx $ Treasuries index sank 2.34% and its yield jumped 33 bps to 1.56%.
This month, USD Asia corporates (-0.34%) outperformed sovereigns, not unexpected in a rising rate environment as corporates carry wider spread cushion than sovereigns. Similarly, USD Asia high yield (+0.33%) outperformed investment grade (-1.06%). High yield bonds suffered the majority of their losses in the CCC-rated segment, while high grade bonds endured significant losses in the mid to long-end of the curve, across all rated-segments.
†This is the monthly change in the semi-annual real yield of the iBoxx TIPS Inflation-Linked index for February.
In the top 7 markets in the index, by market value, only India (+0.17%) recorded gains while Indonesia (-3.02%), the Philippines (- 2.15%) and Singapore (-1.03%) registered the largest losses.
Sector performances were mixed with Oil & Gas, Telecom and Technology lagging and Basic Materials, Health Care and Consumer Goods finishing higher.
In China USD bonds (-0.22%), high yield (+0.22%) outperformed sovereigns and high grade (-0.39%). The China Real Estate sector edged up slightly with its yield falling 53 bps to 6.27%. China LGFV (-0.13%) slipped but still beat the broad China universe by 9 bps.
March 2021 Rebalance
Forty-seven new bonds were added to the index in March. Mainland China, Hong Kong SAR and Macao SAR added 32 new issuances, making up over USD 19 billion (or 70.6%) of the new notional.
Of the 37 bonds removed from the March rebalance, 11 bonds were either called, redeemed or repurchased and became ineligible for the index. Eight bonds in the index traded flat of accrued in February, all issued by CFLD Cayman Investment Ltd.
No fallen angel nor rising star was captured last month. Bonds issued by Semiconductor Manufacturing International Corp are excluded from the Restricted version of the index due to the U.S. Executive Order 13959.
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 moved higher to 4.37 years post rebalance. Hong Kong SAR had the largest duration increase of 0.27 years, after the inclusion of a 5-year, a 10-year and a 30-year bond by the Hong Kong SAR government, with an aggregated notional of USD 2.5 billion. Macao SAR's duration dropped slightly after two short-dated bonds with a combined notional of USD 1.0 billion were called.
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