November 2022 End-of-Month Commentary

Major stock and bond indices posted a welcome rally in November after months of consecutive declines. Markets reversed course this month, driven principally by expectations that policymakers would soon lower the pace of future rate increases.

Market sentiment improved broadly in November. In China, a 20-point playbook of "relaxed" COVID-19 control measures issued by the National Health Commission sparked hopes of an eventual reopening of the country. The eurozone inflation figure for November eased more than expected, supporting a smaller European Central Bank rate hike in December. In his recent remark at the Brookings Institution, U.S. Federal Reserve Chair Jerome Powell indicated that the time for a slower pace of rate increases may come as soon as the next Federal Open Market Committee (FOMC) meeting.

This month, the U.S. Treasury yields moderated, with the 10-year yields falling below 4.0% to 3.68%, while the U.S. dollar continued to soften, dropping over 5%.This combination of lower bond yields and a weaker dollar acted as a catalyst for the market reversal.

In Asia, U.S. dollar bonds rebounded in November, with the iBoxx USD Asia ex-Japan Index increasing 5.11%, its best monthly performance so far in 2022. The index yield dropped by 0.9 percentage points to 6.47%, and the index spread tightened by 53 bps to 253 bps. As shown in Exhibit 1, the overall index and its major subindices all posted positive returns this month. The China Real Estate Index recorded the largest gain, surging over 30%, while the China LGFV Index registered a comparatively lackluster performance of 0.31%.

This month, positive performance was observed across the maturity buckets in all credit rating curves. Strong returns were seen in long-dated investment grade (IG) bonds, while significant gains were observed across the curve in the high-yield (HY) category, particularly in maturity buckets with China real estate debt.

The seven largest markets in the index were in positive territory this month. Mainland China, Indonesia and India were the best performers, all registering gains greater than 5%.

November 2022 Rebalance

This rebalance, the iBoxx USD Asia ex-Japan Index added nine eligible bonds, bringing in around USD 3.23 billion of new notional.

The IG subindex saw about USD 2.51 billion of notional, raised from seven issues, while the HY subindex received USD 715 million worth of notional from two issues.

Of the 45 bonds removed from the index this month, two traded flat of accrued (both from the China Real Estate sector), one was assigned a D rating by the rating agencies and eight were either exchanged or redeemed and became ineligible for the index.

Please refer to the Appendix for a breakdown of this month's insertions and deletions and a list of fallen angels and rising stars recognized in 2022.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.