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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.
Posted 04 March 2021 by Rahul Sharma, Director - Indices, IHS Markit
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