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iBoxx USD Asia ex-Japan Monthly Update: November 2021
October 2021 End-of-Month Commentary
China property sector woes remained a headwind for the Asian dollar bond market in October. The debt problem was deepening in the China real estate market even when the Evergrande Group made overdue payments on its dollar bond coupons before their default grace periods expired. This month, the sector saw a string of defaults by smaller property developers and a series of downgrades on debt issuers by credit rating agencies.
Separately, inflation worries remained at the forefront for the broader financial markets. While some market participants expected the US Federal Reserve to start tapering asset purchases as early as November, some central banks brought forward their timelines for potential rate hikes in 2022. These resulted in higher US Treasury yields this month, with the change in shorter-term yields greater than the change in long-term yields.
Against these headwinds, the iBoxx USD Asia ex-Japan index fell 1.27% in October. The index yield rose 0.19 percentage points to 3.59% and the index spread widened 12bps to 217bps. In credit space, the high grade sub-index declined (-0.14%) across the curve except for the 10-yr segment (where it posted a gain in excess of 1%). The high yield sub-index slumped (-5.41%) as defaulted bonds from the China Real Estate sector placed a drag on the short to mid end of the curve.
Among the largest seven index markets, the worst performer was China, followed by South Korea and Hong Kong.
Financials was the worst performing sector, while Oil & Gas, Basic Materials and Health Care were the only sectors that posted gains.
China USD bonds trended down for the second straight month, as its index and sub-indices (except for China Sovereigns) closed lower. China sovereign (+0.01%) outperformed both the China high grade (-0.30%) and high yield (-9.87%).
The China Real Estate sector suffered another month of large loss, dragging down the performance of the broader indices.
November 2021 Rebalance
This rebalance, 31 new bonds entered the index. Mainland China and South Korea added 24 new issuances, making up over USD 12 billion (or close to 69%) of the new notional.
Of the 48 bonds removed from the index in October:
- 12 were traded flat of accrued interest, including 8 bonds from Fantasia Holdings Group and 4 from Modern Land (China).
- 9 bonds were redeemed, either in whole or in part, and became ineligible for the index.
Five rising stars were captured this month, including three that were identified based on iBoxx implied credit rating methodology.
Please refer to the full commentary for a breakdown of this month's insertions and deletions, and a list of fallen angels and rising stars recognised in 2021.
Post rebalance, the overall index duration rose 0.06 to 4.64 years. Markets with the most noticeable change in duration were Taiwan (+1.95 years), Indonesia (+0.10 years) and Vietnam1 (-0.16 years).
TSMC Global Ltd, a semiconductor company headquartered in Taiwan, issued four new bonds in October with a combined notional size of USD 4.5 billion. Three of the four bonds offered are long-term debt and their maturities are stacked at a decade apart.
Indonesia added two long-dated corporate bonds from the Consumer Goods sector with an aggregated bond size totalling USD 1 billion. PT Pertamina from the Oil & Gas sector partially redeemed one of its bonds six months prior to its maturity.
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