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iBoxx USD Asia ex-Japan Monthly Update: September 2021

06 September 2021 Wilson Mak

August 2021 End-of-Month Commentary

The US economy continued to run hot in August. Positive economic data and strong corporate earnings results provided support to sentiment and valuations. While rising prices remained a recurring topic, Fed Chairman Jerome Powell reiterated comments about inflation being transitory. Furthermore, while no firm tapering timeline was announced at the Federal Reserve's annual economic symposium, the possibility of it starting by year-end was mentioned.

Asia's economies, on the contrary, lost momentum in July. The regional IHS Markit PMI† fell to 48.5 in July from 52.2 in June. In particular, China's economy saw its official composite PMI‡ dropped to 48.9 in August from 52.4 in July. Chinese businesses came under pressure this month as they battled against COVID-19 outbreaks and restrictions, high input prices and declining exports.

Returns of USD bonds in Asia turned positive in August, with the iBoxx USD Asia ex-Japan index rallying +1.04%. The index yield fell 16 bps to 3.20% and its credit spread narrowed 22 bps to 203 bps.

This month, Asia USD corporates outperformed sovereigns by 0.33%. High grade (+0.76%) delivered gains across the A and BBB-rated segments. High yield (+2.05%) rebounded from last month, with the losses in the CCC and 0-1yr bucket attributed to bonds issued by the China Evergrande group, the heavily indebted property developer in China.

In the corporate space, Financials led the gains while Consumer Services and Health Care underperformed.

China USD bonds (+1.42%) rallied, with high yield outperforming high grade, returning 2.39% compared to 1.08%.

The China Real Estate sector (+2.42%) surged after falling for the past two months. At the end of August, bonds from China Evergrande group constituted less than 0.80% of the overall index or less than 0.41% of the China sub-index.

China LGFV (+0.88%) outperformed this month, with both its high grade (+0.46%) and high yield (+2.11%) segments yielding positive returns.

September 2021 Rebalance

Thirty-four new bonds entered the index in September. Mainland China and India added 29 new issuances, making up over USD 12.4 billion (or close to 45%) of the new notional.

Of the 23 bonds removed from the rebalance:

  • Eight (5 from China and 1 each from India, Indonesia and Singapore) were either called, redeemed or repurchased
  • One bond from Granda Century Limited, a subsidiary of Suning Appliance Group in the China consumer services sector, was traded flat

Four fallen angels and one rising star, all from China, were captured this month. Three of the four fallen angels are issued by a subsidiary of China Huarong Asset Management Co. Ltd.

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 0.03 to 4.52 years. Markets with the most noticeable change in duration were Singapore (+0.76 years) and India (+0.10 years).

In Singapore, Temasek Holdings issued 3 new bonds in August, with respective maturities of 10, 20 and 40 years, and a combined notional of USD 2.5 billion. Meanwhile, new mid to long-dated issuances from India that spanned multiple sectors were added to the index at an aggregated notional size of USD 4.0 billion.

†IHS Markit Asia excluding Japan Composite PMI.

‡Composite PMI Output Index published by National Bureau of Statistics of China.

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Posted 06 September 2021 by Wilson Mak, Analyst - 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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