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iBoxx USD Asia ex-Japan Monthly Update: November 2020

06 November 2020 Rahul Sharma

October 2020 End-of-Month Commentary

Financial markets in October finished with a trifecta of uncertainties around the outcome of the U.S. presidential election, the size and timing of the U.S. stimulus package, and the resurgence of COVID-19 cases around the globe.

Against this backdrop, the USD Asia overall index, with over 50% regional exposure to China, oscillated in a fairly narrow band and fell -0.07% in the red for the month. Index yield inched up 3 basis points to 3.38% while credit spread narrowed 11 basis points to 257 basis points. In the same period, the iBoxx $ Treasuries index dropped 1.03% with its yield rising 14 basis points to 1.07%.

Non-sovereign bonds (+0.08%) outperformed sovereign bonds (-1.18%) in October. Within credit, high grade bonds (+0.05%) edged up slightly while high yield bonds (-0.48%) drifted lower. The most heavy losses were observed in 10yr+ bonds in investment grade and B-rated bonds in high yield.

Sector outperformance this month largely came from Health Care (+1.26%) and Consumer Goods (+0.39%). Whereas, Consumer Services (-0.91%), Basic Materials (-0.35%), Oil & Gas (-0.28%) and Industrials (-0.15%) all incurred losses.

Within the top 7 markets in the index by market value, only Singapore (-0.23%) and South Korea (-0.05%) finished lower.

In China USD bonds (+0.08%), high yield outperformed investment grade, returning 0.20% compared to 0.03%.

China Real Estate delivered a return of 0.20% and currently has a yield of 7.34%.

China LGFV produced a return of 0.63% during the same period and currently has a yield of 3.94%.

November 2020 Rebalance

The November rebalance added 61 bonds to the index. Mainland China and Hong Kong accounted for 42 bonds, making up USD 23 billion (or 70%) of the new notional.

Of the bonds removed from the index, two were redeemed in full and two were partially repurchased thus becoming ineligible for the index. No fallen angels were captured this month.

For a detailed breakdown of insertions and deletions, and a list of fallen angels recognised in 2020, please refer to the Appendix in the full commentary.

Post rebalance, the overall index duration increased by 0.06 to 4.44 years.

Singapore had the largest duration increase of 1.24 years, driven by the inclusion of three very long-dated bonds from Temasek Financial I Ltd with an aggregated issuance size of USD 2.75 billion.

Mongolia added a new USD 600 million government bond to the index after the government refinanced the USD 500 million debt due in 2021.

Posted 06 November 2020 by Rahul Sharma, Director - Indices, IHS Markit

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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