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The rally in Asia USD bonds that began in late March and carried
over into summer months took a breather in September. The overall
index slipped -0.60% this month, marking the end of a five-month
rally and the second month this year with a negative
performance.
The overall index yield rose 0.18% to 3.35% while the index
spread widened 20 bps to 268 bps. The yield of iBoxx $ Treasuries
index fell 0.02% to 0.92% in the same period.
Non-sovereign bonds outperformed this month, down only -0.48%
compared to decline of -1.43% for the sovereigns. In the credit
space, high grade bonds drifted lower by -0.23% but high yield
bonds surrendered -1.78%. The AAA rated segment recorded the
highest gain this month, while BB and B segments registered losses
across all maturity buckets.
Asia USD corporates were dragged lower (-0.53%) this month, with
eight of the ten sectors in negative territory. Basic Materials
(-1.06%) took the biggest hits, while Consumer Goods (+0.32%) and
Health Care (+0.13%) sectors were the only gainers.
Within the top 7 markets in the index by market value, only Hong
Kong (+0.07%) and South Korea (+0.15%) finished higher.
For China USD bonds, investment grade recorded smaller losses
compared to high yield, returning -0.22% compared to -1.46%.
Within China USD corporates, Non-Financials posted -0.53%, while
Financials returned -0.70%. China Real Estate returned -1.35% this
month and currently has a yield of 7.15%.
October 2020 Rebalance
The October rebalance added 57 bonds to the index. Mainland
China, Hong Kong and South Korea combined accounted for 50 bonds,
adding over USD 28 billion (or 77%) of the new notional.
Of the bonds removed from the index this month, two were
redeemed in full, one was refinanced, and one was partially
repurchased and became ineligible for the index.
There are six fallen angels captured this month, five of them
coming from the banking sector in India and the remaining one from
the insurance sector in Hong Kong.
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.
The overall index duration increased by 0.04 to 4.43 years to
begin the final quarter of the year.
Taiwan had the largest duration increase of 1.54 years post
rebalance. This market added three new medium-dated bonds with an
aggregated issuance size of USD 3 billion from TSMC Global Ltd, a
subsidiary of TSMC.
Posted 08 October 2020 by Rahul Sharma, Director - Indices, IHS Markit
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