April 2022 Commentary
Headline inflation remained hot in April. The ongoing conflict in Ukraine maintained upward pressure on energy and commodity prices around the world. The pandemic lockdown in China exacerbated the supply chain bottlenecks, further boosting inflation in many economies. In the U.S., domestic consumption accelerated at an annualized rate of 2.7% in Q1 2022. In response, major central banks shifted to a more hawkish stance in their monetary policies to combat inflation.
Rising U.S. rates were a primary driver for Asian USD bond weakness this year. The iBoxx USD Asia ex-Japan Index retreated 2.2% in April, marking its fourth consecutive monthly decline in 2022.
Asian credit spreads contracted this month, but the rise in interest rates offset gains from the spread tightening. The USD Asia IG index sank 2.49% with large losses seen in long maturity buckets, while its average credit spread narrowed by 9 bps. The USD Asia HY index fell 0.91% as its spread shrank by 80 bps. The CCC-rated segment plunged 7.56%, dragged down by defaults of Sri Lanka government bonds and Chinese real estate issuance.