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iBoxx SGD Monthly Commentary: April 2022

iBoxx GBP Monthly Commentary: April 2022

iBoxx EUR Monthly Commentary: April 2022

iBoxx ALBI Monthly Commentary: April 2022

U.S. Equities Market Attributes April 2022

iBoxx SGD Monthly Commentary: April 2022

April 2022 Performance

Shorter- and longer-term interest rates in developed markets moved higher in April.  The broad increase in rates reflected a progressing inflationary environment stemming from hot headline inflation, the impact of the pandemic and the ongoing Russia-Ukraine conflict.  Global equities declined and fixed income underperformed, as the abrupt lift-off in rates prompted markets to adjust to new valuations. The U.S. dollar surged to a recent high on the back of aggressive U.S. rate hike forecasts, and commodity prices remained at elevated levels supported by supply dislocations.

In Singapore, the MAS raised the core inflation forecast for 2022 and adopted a tighter monetary policy to slow inflation momentum and maintain price stability.  The iBoxx Singapore Dollar (SGD) Overall Index fell 0.76% in April, after the worst monthly loss of -3.03% since inception over the preceding month.

All investment grade (IG) subindices fell in the red, with the A sector registering the best performance and the BBB sector the worst.  In general, SGD IG bonds endured losses across the curve and faced sharp declines in longer-dated maturity buckets.

With lower duration and higher yield, the non-sovereigns sub-index outperformed both the overall index and government subindex.  Temasek and LTA bonds had the longest duration among the worst performers.

By the end of the month, the overall index offered a yield of 2.83% with a duration of 6.93 years.

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iBoxx GBP Monthly Commentary: April 2022

April 2022 Commentary

As was widely expected, the Bank of England increased its base interest rate during its monetary policy meeting on May 5, 2022, increasing it to the highest level since early 2009.  Stagflation fears remain the key focus in the pound-denominated debt market and are continuing to put pressure on prices.

Amid hiking yields and lower prices, the iBoxx GBP Overall Index was down 2.79% in April.  Government debt, down 2.83%, fared worse than the 2.71% monthly drop in the non-Gilts category.  As such, annual yields on Gilts surpassed their multi-year highs set in 2014.  Yields on corporate debt lagged, but kept those new highs in sight.

In the iBoxx GBP Corporates Index, some categories posted losses in the double digits, including Consumer Services, Health Care, Telecommunications and Utilities.

Within corporates, the Oil & Gas category has become the worst performer this year.  This is mainly due the Russian bonds, which were excluded from all indices at zero value in March.  Outside Oil & Gas, Utilities has been the second-worst performer in the index, down 10.79% down over the past 12 months, on a rolling basis.

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iBoxx EUR Monthly Commentary: April 2022

April 2022 Commentary

In line with other markets globally, the yields of iBoxx EUR Overall Index rose by about 50 bps across the whole curve in April.  By the end of April, the average yield of the iBoxx EUR Corporates Index had risen to a level last seen in 2014.  The rise in yields also led to a corresponding shortening of duration—the duration of the iBoxx EUR Eurozone Index dipped below eight years for the first time since 2018.

The upward shift in the yield curve led the iBoxx EUR Overall Index to another month of heavy declines.  Losses extended across all maturity bands; long-dated bonds with a maturity of more than 10 years were hit especially hard, showing declines of more than 7% on average.

The longer average duration of sovereign debt saw the iBoxx EUR Eurozone Index down 3.79% month-over-month, compared with a loss of 2.79% for the iBoxx EUR Corporates Index. 

Losses were observed across all rating categories and corporate sectors.  This is in a contrast to equity indices, where Energy stocks showed positive performance in April.  On the bond side, Utilities and Oil & Gas, the iBoxx sectors with the largest exposure to Energy were in the bottom half in terms of performance in April.

In other market news, European Central Bank’s President Christine Lagarde said in late April that the bank’s bond buying program would slow down toward early third quarter, with the eurozone interest rates also slowing down likely toward July. 

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iBoxx ALBI Monthly Commentary: April 2022

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Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

April 2022 Commentary

As the Omicron wave of COVID-19 subsided in most parts of the world, border restrictions were either relaxed or removed in a number of countries, and businesses and individuals began to look forward to lives that may somewhat resemble pre-COVID-19 days.  This said, global markets did not have the best month in April due to a slew of reasons—including the ongoing Russia-Ukraine conflict, global supply chain disruptions, tightening COVID-19 restrictions in China and inflationary pressures.

Global equities were down 8.15% (as per the EMIX All World Index).  U.S. Treasuries fared slightly better but still ended the month down 3.23%.  In Asian fixed income, the iBoxx Asian Local Bond Index

(ALBI) (unhedged in USD) was also in the red, losing 3.92%, as all eligible markets except China Onshore (up 0.29%) lost ground.  The worst-performing markets were Thailand (‑3.86%) and Malaysia (‑3.05%).  Apart from China Onshore and the Philippines, all other markets recorded losses (in local currency terms) across the yield curve.  The largest losses were concentrated in the long end.  Of these, Thailand 10+ (-7.12%) and Hong Kong 10+ (-6.97%) were notable.  On the bright side, China Onshore saw modest gains across all maturity bands.

Through April, the overall index yield increased by 26 bps to 3.99%.  Excluding China Onshore (‑1 bp), all other underlying markets saw yield increases, with Hong Kong climbing 56 bps to 3.51%—exceeding 3.5% for the first time since index inception.  India remained the highest-yielding bond market in the index, offering 7.19%, while Singapore (2.79%) was the lowest-yielding market.

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U.S. Equities Market Attributes April 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes April 2022

MARKET SNAPSHOT

April showers (i.e., the Russia-Ukraine conflict, inflation, interest rates, continued labor shortages, supply chain issues, and politics) did not bring flowers, but rather brought U.S. equities down for the month. The S&P 500 traded in a high/low range of 11.38%, compared with the pre-COVID-19 historical monthly average of 6.86%. The index posted an 8.80% decline for the month (4,131.93 compared with last month's 4,530.41), ending the month with its worst one-day return (-3.63%) since June 11, 2020 (-5.89%), and in correction territory; it was also down 13.86% from its Jan. 3, 2022, opening day closing high of 4,798.56 and replaced the recent low set on March 8, 2022 (of 4,170.70), with the index at -13.31% YTD.

Meanwhile, the mask mandate was lifted for domestic flights, but it was still in effect for the New York City subway. While the debate (and legal battles) on masks has continued, the Street appeared fully unmasked when it came to predictions regarding the U.S. Fed's dot plot: (i) no dots became a 0.25% interest rate increase, then 0.50% as the month went on, with 0.75% just a mention (for now); (ii) transient became irrational inflation, which became signs of peaking; and (iii) diving into a hard landing became a 2023 recession, and then employment, money and wealth may let us skirt (or limit) it. Typically, with so many views you would expect one of them to be right, but given all the uncertainty, looking beyond the short term may be easier—as long as you have liquidity and cash flow (an untaxed portfolio is not a cash account).

As for market fundamentals: earnings and sales for Q1 2022 so far have beaten estimates and were up year-over-year (8.5% and 11.9%, respectively), but they were down from the record Q4 2021 numbers (-9.3% and -3.8%, respectively). Significant EPS impact due to share count reduction for the Q1 2022 period was 17.8% of the reported issues, compared with 14.9% in Q4 2021, 5.8% in Q1 2021, and 24.9% in Q1 2019. Operating margins for Q1 2021 remained high, coming in at 12.64%, down from 13.41% in Q4 2021 (the average from 1993 was 8.21%, and the record is 13.54% in Q2 2021). Forward guidance, however, has been an issue as the economy has started to slow down.

Sales are the bigger concern, and the ability to pass along cost increases appears to be showing signs of consumer fatigue (Q1 2022 operating margins remain high at 12.64%, but are expected to decline; the historical average is 8.21%). Dividends continue on a slow upward trend, with few decreases and measured increases. Interest rates, as measured by the U.S. 10-year Treasury Bond, continue to flirt with 3%, while they are moving faster for the average 30-year mortgage rate, which was up over 200 bps from year-end 2021 (to 5.37% from 3.06%), and that cost is before the higher mortgage amounts due to higher home prices (up 20.2% year-over-year in February 2022). The impact on housing has been a slowing of sales, but demand remains high as supply is low, as higher home prices and interest rates are expected to reduce the demand, and eventually prices.

While Biden continued to send military equipment to Ukraine, Washington took a back seat, as no one wanted to speak of spending programs or taxes. Florida became the political center, as it passed a bill that would prohibit "classroom discussion about sexual orientation or gender identity." Several corporations, including Walt Disney (DIS) openly opposed the bill. The Florida legislature then passed a bill repealing Disney's special tax status, which was used in 1967 to attract Disney to the state.

On and off "peace" talks continued between Russia and Ukraine, as some progress was seen, with Ukraine proposing a "neutral status" and U.S. markets reacting positively. After an incomplete northern invasion of Ukraine, Russian forces regrouped (creating a temporary lull in the conflict), and then launched an incursion into eastern Ukraine (Donbas). The U.S. continued to send military aid, as the latest reports of war atrocities included mass graves (near Mariupol). Ukraine Prime Minister Shmyhal said rebuilding Ukraine would cost USD 600 billion (2020 GDP was USD 156 billion). U.S. Secretary of State Blinken and Secretary of Defense Austin went to Kyiv, Ukraine and met with President Zelenskyy. Russia said it had stopped gas flows to Bulgaria and Poland after they declined Russia's demand to pay in rubles.

Oil closed at USD 104.13 (it had reached USD 130.50 this year) and was up 38.1% YTD (USD 75.40), as EIA all-grade gasoline was up 24.8% (USD 4.211 from year-end 2021's USD 3.375; it reached USD 4.414 in March 2022). From year-end 2020, oil was up 115% (USD 48.42 per barrel), as gasoline was up 80.7% (USD 2.330 a gallon). For 2021, the EIA reported that the makeup of gasoline costs was 53.6% from crude oil, 16.4% from federal and state taxes, 15.6% from distribution and marketing, and 14.4% from refining costs and profits.

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