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iBoxx USD Asia ex-Japan Monthly Update: May 2021
April 2021 End-of-Month Commentary
There was no major shift in the market narrative this month. While fiscal policy agendas are coming together and vaccinations continue to progress, global economies are recovering but at an uneven pace. Investors are weighing the brighter economic recovery outlook alongside the threat from the rise in new COVID-19 variant cases and the prospect of higher near-term inflation.
USD bonds in Asia turned to a positive tone in May, with the iBoxx USD Asia ex-Japan index rallying +0.35%, reversing the trend seen in the past two months. The index yield slipped 1 bp to 3.35% and its credit spread rose 7 bps to 201 bps. Meanwhile, the iBoxx $ Treasuries index yield fell 9 bps to 1.66%.
This month, longer duration USD Asia sovereigns outperformed corporates by 134 bps. High grade bonds (+0.07%) edged up higher with strong gains seen in the AA and A buckets of the 10+yr segment. Performance in the A/5-7yrs bucket was dragged down by the China AMC bonds†, with large losses incurred by the bonds issued by Huarong Finance. In contrast, high yield bonds (+1.29%) performed significantly better but endured losses in the B/10+yr segment.
Within the top 7 markets in the index, by market value, only Mainland China (-0.15%) posted a loss, while Indonesia (+1.36%) and the Philippines (1.14%) registered the largest gains.
Basic Materials and Oil & Gas led other sectors this month, with only the Financials sector incurring a loss.
China USD bonds (-0.15%) continued to fall, with high yield outperforming high grade, returning 1.18% compared to -0.65%. The China Real Estate sector bounced back in May, after posting a loss last month, outperforming the broad China sector (-0.15%). China LGFV (+0.66%) roared back this month, after a dismal return in April, with strong performance coming from the high yield (+2.39%) segment.
May 2021 Rebalance
Fifty-two bonds were added to the index this month. Mainland China, Malaysia, Korea and Taiwan added 33 new issuances, making up close to USD 24 billion (or 71.4%) of the new notional.
Of the 6 bonds removed from the rebalance, 2 were partially repurchased, with their outstanding notional falling below USD 250 million, making them ineligible for the index. The other 4 bonds were called.
Offshore USD bonds issued by Huarong entities were under distressed in April. A subordinated hybrid issued by Huarong Finance 2019 Co Ltd was the only fallen angel this month. Other Huarong bonds in the index are senior debt obligations, all of which remained in the index post rebalance.
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 4.41 years in May. Markets with the most noticeable duration changes were Malaysia, Pakistan and Taiwan.
Malaysia expanded its notional base by USD 5.3 billion, with new issuances in the government, Consumer Services and Oil & Gas sectors. Pakistan added three long-dated bonds with a combined notional of USD 2.5 billion, increasing the total number of sovereign bonds in this market to 9. Taiwan's duration increased by 0.81 years, after the inclusion of three new bonds by TSMC Global Ltd, a semi-conductor company, with an aggregated notional of USD 3.5 billion.
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