Monthly performance, maturity, yield and duration of the iBoxx ALBI, iBoxx ABF and iBoxx SGD Indices.
As 2023 drew to a close, the debate over hard landing versus soft landing continued, although market consensus shifted toward a softer landing as the year progressed. This conversation looks likely to carry on into 2024.
In December, the final FOMC meeting of 2023 was held and the predictions of most analysts held true as U.S. interest rates stayed in the 5.25%-5.5% range. The 10-2 Year Treasury Yield Spread remained relatively unchanged as well at -0.35%. At the same time, U.S. Treasuries—as represented by the iBoxx $ Treasuries—gained 3.48% in December and 4.12% for the full year.
In the U.S. equity market, the S&P 500® had a stellar year with a return of 24.23%, wiping away 2022 losses and ending the year within reach of the all-time high set on Jan. 3, 2022. Other equity markets lagged the S&P 500, notably, Chinese stocks—as represented by the S&P China 500 (USD)—were down 14.25% in 2023, while broader Asian markets—as represented by the S&P Pan Asia Ex-Japan LargeMidCap (USD)—fared better, up 5.99% for the year.
iBoxx Asian Local Bond Index (ALBI)
In Asian fixed income, Asian local currency bonds—as represented by the iBoxx Asian Local Bond Index (ALBI) (USD Unhedged)—gained 2.64% in December on the back of both capital gains as well as FX gains in most markets (except the Hong Kong dollar which is pegged to the U.S. dollar). For the full year, the index returned 5.81% (compared to -7.39% in 2022), outperforming U.S. Treasuries.
For the second month running, all local markets posted positive returns. South Korea and Hong Kong, in local currency terms, led the gains in December, up 4.48% and 2.32%, respectively. At the other end of the spectrum were China Offshore (0.35%) and Malaysia (1.01%). In 2023, South Korea (9.27%), Indonesia (8.55%) and the Philippines (8.33%) were the top-performing local markets.
Gains were observed across the yield curve, with clear investor preference for longer-dated bonds. South Korea 10+ stood out as the best-performing segment, returning 8.48%, while Hong Kong 10+, Singapore 10+ and Thailand 10+ all recorded gains exceeding 3%.
At the end of 2023, the overall index yield decreased by another 30 bps to 3.85%. India remained the highest-yielding bond market in the index, posting 7.31%, while China Onshore (2.62%) represented the lowest-yielding market.