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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.
Posted 07 September 2020 by Rahul Sharma, Director - Indices, IHS Markit
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