November 2022 End-of-Month Commentary

Protests against the "Zero-COVID" policy in China dominated the headlines in November, causing global stocks to fall in a knee-jerk reaction in the last week of the month. Despite some jitters caused by the protests, the S&P 500 posted a gain of 5.38% in November, as the market banked on the possibility of a more accommodative stance from the Federal Reserve. One of the key economic indicators—the 2s/10s spread of the U.S. Treasury yield curve—continued to widen into the red and has remained in negative territory since July of this year. This was against the backdrop of somewhat easing inflation numbers and a slightly more dovish tone in the Federal Reserve Chair's latest speech in late November.

U.S. Treasuries—as represented by the iBoxx $ Treasuries—gained 2.83% in the penultimate month of this year. In Asian fixed income, the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) surged 5.47% in the same period as a result of both capital and FX gains (against the U.S. Dollar) in most eligible local markets.

Most local markets recorded gains (in local currency terms) this month, with South Korea (up 3.88%) and Indonesia (up 3.61%) leading the pack. In fact, half of the eligible markets returned more than 2%. China Onshore (-0.99%) and China Offshore (-0.12%) were the only markets in the red.

Gains were observed across the yield curve (apart from China On- and Offshore) and the highest gains were concentrated in the long end of the curve. Returns of the Hong Kong 10+, South Korea 10+ and Thailand 10+ exceeded 5% this month.

From a yield perspective, the overall index yield (in semiannual terms) dipped slightly (-23 bps), offering 4.23% as of Nov. 30, 2022. Consistent with performance of local markets, only yields of China On-and Offshore rose this month. India remained the highest-yielding bond market in the index, offering 7.34%, while China Onshore (2.98%) remained the lowest-yielding market.

December 2022 Rebalance

The latest rebalance saw 44 bonds entering and 24 bonds leaving the overall index (please refer to the Appendix for a detailed breakdown of insertions and deletions).

Following the iBoxx Asia-Pacific Annual Index Review, the change in index, the change in index weights was applied in the index rebalance on Nov. 30, 2022. According to the iBoxx ALBI methodology, the maximum permissible market weight change is 50 bps per quarter. As the change for China Offshore was 75 bps, the market weight changes in the index will take place over two quarters—on Nov. 30, 2022, and Feb. 28, 2023.

The index duration remained relatively unchanged following the recent rebalance, at 6.50 years. All markets saw their duration increase this month, with the largest increase coming from Thailand (up 0.18 years). Among the eligible markets, South Korea currently has the longest duration (8.42 years), while China Offshore remains the least sensitive to interest rates, with a duration of 2.73 years.

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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.