July 2022 End-of-Month Commentary
In line with market expectations, the Federal Reserve raised its
key benchmark rate by 75 bps in July—its second increase of
this magnitude in consecutive months and its fourth hike this year.
With the Hong Kong dollar pegged to the U.S. dollar, the Hong Kong
Monetary Authority (HKMA) acted swiftly after the announcement and
raised its base rate by the same margin (75 bps). Other Asian
central banks also tightened their monetary policy over the past
month, including the Bank of Korea (up 50 bps), Bank Negara
Malaysia (up 25 bps), Bangko Sentral ng Pilipinas (up 75 bps) and
Monetary Authority of Singapore (via raising the mid-point of the
Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy
The S&P 500® recorded
strong gains in July, up 9.11%, outperforming U.S. Treasuries
(proxied by the iBoxx USD Treasuries), which returned 1.70%. U.S.
TIPS (represented by the iBoxx TIPS Inflation-Linked Index) climbed
It was a good month for Asian fixed income as well. The iBoxx
Asian Local Bond Index (ALBI) (unhedged in USD) gained 1.21%,
supported by gains in all eligible underlying markets in local
currency terms. This was despite FX losses against the U.S. dollar
in all but two markets—namely Singapore and Indonesia. South
Korea was the top performer (up 4.42%), while Malaysia (up 2.58%)
and Thailand (up 2.48%) were a distant second and third.
Looking at different maturity segments, it was largely a sea of
green except for short-to-medium dated Indonesian government bonds.
Bonds at the long end of the curve generally performed better, with
South Korea 10+ Year (up 8.11%), Hong Kong 10+ Years (up 5.82%) and
Thailand 10+ Years (up 5.18%) scoring the highest performance in
Yields (in semiannual terms) declined in all markets except
Indonesia in July. As a result, the average index yield dropped 25
bps to 3.98%. The largest change came from South Korea (-46 bps),
which offered an average yield of 3.07% as of July 31, 2022. India
remained the highest-yielding bond market in the index, offering
7.42%, while China Onshore (2.91%) was the lowest-yielding
August 2022 Rebalance
The latest rebalance saw 27 bonds entering and 22 bonds leaving
the overall index. Please refer to the Appendix in the full
commentary for a detailed breakdown of insertions and
Weight changes in the eligible markets are reviewed and applied
annually, and the next change is expected on Nov. 30, 2022. The
latest weights are updated in the full commentary.
The index duration lengthened by 0.05 to 6.62 years after the
recent rebalance. All markets except Hong Kong, South Korea and
Thailand saw their duration increase this month, with the largest
increase coming from Singapore (up 0.23 years). Among the eligible
markets, South Korea currently has the longest duration (8.79
years), while China Offshore remains the least sensitive to
interest rates, with a duration of 2.74 years.
Posted 04 August 2022 by Kangwei Yang, Director – Indices, S&P Dow Jones Indices
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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.