Featuring iBoxx USD Asia-Pacific
October 2024 Commentary
With the U.S. presidential election approaching and strong economic data highlighting the resilience of the U.S. economy, uncertainties surrounding future interest rate moves from the Federal Reserve have been rising, leading to heightened market volatility. The European Central Bank and the Danish Central Bank cut rates for a third time this year. Central banks from Thailand and South Korea administered their first rate cuts (of 25 bps) since 2020, both describing the reductions as measures to boost economic growth. Bangko Sentral ng Pilipinas cut rates by 25 bps after its first adjustment in August.
The U.S. dollar surged against most Asian currencies after depreciating in Q3 2024, reversing YTD gains for all Asian currencies except for the Malaysia ringgit, Thai baht and Hong Kong dollar. Among Asian currencies, the ringgit has performed the best against the U.S. dollar, gaining 4.58% since the start of the year.
10-year U.S. Treasury yields—as represented by the iBoxx USD Treasuries Current 10-Year—increased by 51 bps to 4.33%, returning to levels last seen in July. The index was down 3.60%—breaking its five-month streak of gains. The S&P 500® ended its five-month streak and closed the month down 0.99% (still up 19.62% YTD).
After strong performance (up 22.65%) last month, Chinese equities—as represented by the S&P China 500 (USD)—lost steam and went down 4.70%, although their YTD return was still in the black at 15.59%. The loss came despite the People’s Bank of China (PBoC) cutting benchmark lending rates and initiating swap and relending schemes, which allowed financial institutions to obtain funding for stock purchases. Chinese-issued U.S. dollar bonds—as represented by the iBoxx USD Asia ex-Japan China—were down 0.48%.
The Asian U.S. dollar bond market ended the month down 0.96%, weighed down by a 1.16% drop in investment grade bonds, while the high yield segment posted a 0.39% gain. China Real Estate, which has been one of the best-performing segments since March, remained unfazed by the rest of the market and rose 0.73%. For the one-year period, the China Real Estate segment was up 43.45%. The APAC ex-China U.S. dollar bond market underperformed the Asian U.S. dollar bond market by 21 bps in October.
The ultrashort 0-1 maturity segments and short-end high yield segments saw slight gains, while the rest of the market, particularly the long-end investment grade segments, declined. High yield segments remained favored for a second month, outperforming investment grade by 155 bps. The yields of sovereign bonds rebounded to 5.18% after two months of falling below 5%. Sovereign bonds, which make up 15% of the overall index, also underperformed non-sovereign bonds by 139 bps in October. Year-to-date, high yield bonds were up 14.36%, while investment grade bonds trailed, posting 4.30%.
