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iBoxx USD Asia ex-Japan Monthly Update: September 2020
August 2020 End-of-Month Commentary
The social and economic impact of COVID-19 continue to be felt across Asia, but that has not stopped Asia USD bonds from advancing. The overall index inched higher (+0.47%) in August, extending its gains for the fifth consecutive month. Both index yield (-3 bps) and spread (-15 bps) continued to fall, though the degree of contraction observed is the weakest since the rally began in April.
Non-sovereign bonds (+0.48%) marginally outperformed sovereigns (+0.43%) in August. High yield bonds (+2.11%) were clearly in favour this month, as evident by their gains observed across all maturities and the significant tightening of their credit spreads (-76 bps, on average). On an overall basis, high grade bonds edged down slightly (-0.04%) as substantial losses in 7yr+ bonds were largely offset by gains in the shorter maturity segments.
Asia USD corporates recorded a modest gain (+0.49%) this month. Eight of the ten sectors were in positive territory. Basic Materials (+1.74%) advanced the most, while Oil & Gas (-0.69%) and Technology (-0.55%) sectors closed lower.
Within the top 7 markets in the index by market value, India (+1.93%) outperformed other markets by a wide margin, while the Philippines pulled back (-1.25%) this month.
For China USD bonds, high yield outperformed investment grade, returning 1.40% compared to 0.02%.
Within China USD corporates, Financials posted 0.82%, outperforming Non-Financials by 93 bps. China Real Estate returned 1.28% this month and currently has a yield of 6.37%.
September 2020 Rebalance
The September rebalance added 45 bonds to the index. Mainland China, Hong Kong and Macao combined accounted for 35 bonds, making up $16.95 billion (or 69%) of the new notional.
Of the bonds removed from the index this month, 11 had matured, 2 were redeemed in full and 1 bond was traded flat of accrued.
The three fallen angels captured this month are from the China market, of which 2 are LGFVs.
For a detailed breakdown of insertions and deletions, and a list of fallen angels recognized in 2020, please refer to the Appendix in the full commentary.
The index duration increased by 0.03 to 4.45 years post the September rebalance.
The largest duration change came from Malaysia with an increase of 0.49 years. The two new bonds added to this market are long-dated, from the Telecom sector and have a combined notional of USD 1.5 billion.
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2021 dividends are predicted to approach $1.78tr, up 6.5% from the $1.67tr paid by the same firms in 2020. Read abo… https://t.co/Qqley4Jnp1