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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.
Posted 10 May 2021 by Wilson Mak, Analyst - Indices, S&P Dow Jones Indices
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