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iBoxx USD Emerging Markets Monthly Commentary: June 2024

iBoxx USD Asia Ex-Japan Monthly Commentary: June 2024

iBoxx Asian Local Currency Indices Monthly Commentary: June 2024

U.S. Equities Market Attributes June 2024

iBoxx USD Asia Ex-Japan Monthly Commentary: May 2024

iBoxx USD Emerging Markets Monthly Commentary: June 2024

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Catalina Zota

Associate Director, Fixed Income Product Management

S&P Dow Jones Indices

June 2024 Commentary

Market Overview

In June, at the half-year mark, U.S. Treasury yields ended higher than where they started at the beginning of 2024: the 2-year was at 4.71%, the 5-year was at 4.33%, the 10-year was at 4.36% and the 30-year was at 4.51%.  Compared to Jan. 2, 2024, this constitutes an average increase of 40 bps across the tenors.  In contrast to curve inversion—which historically has predicted a recession—the increase in Treasury yields usually reflects positive investor sentiment and higher mortgage rates influencing the bond market.  At its last meeting in June, the U.S. FOMC decided to keep the federal funds rate unchanged, citing easing but little-changed conditions since March and hinting at one rate cut later in the year.  The CPI was unchanged in May after rising 0.3% in April.  For the 12-month period, inflation stood at 3.3%. The BLS report in June stated that the U.S. unemployment rate was 4.0%, little changed in May.

The overnight repo rate, a measure of market liquidity, ranged between 5.28%-5.47%, in line with May.  On the equities front, the S&P 500® was up 3.47% in June, led by Information Technology, Consumer Discretionary and Communication Services.

Latin America continued its turbulent year.  Banco Central do Brasil kept the Selic interest rate at 10.5%, quoting increasing household consumption, resilient economic activity and inflation not decelerating in line with the committee’s expectations.  In Argentina, President Milei’s economic reforms passed the senate after his vice president cast the final vote.  The reforms are a pared-down version of his original radical economic transition and still have to pass the house of deputies.  Another win for Milei was China’s extension of a CNY 35 billion (USD 5 billion) currency swap line until July 2026, giving the economy more room for reform and growth.

In Europe, the Eurostat report released on July 2, 2024, stated that eurozone inflation was at 2.5% in June, down from 2.6% in May.  In India, the HSBC India Manufacturing PMI  rose to 58.3 in June from 57.5 in May, five points above its long-run average.  The increase was influenced by new orders, output and buying levels with favorable business conditions.

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iBoxx USD Asia Ex-Japan Monthly Commentary: June 2024

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Jessica Tan

Principal, Fixed Income Indices

S&P Dow Jones Indices

Featuring iBoxx USD Asia-Pacific

June 2024 Commentary

Divergence in global interest rate policies continued in June as central banks such as the European Central Bank, Bank of Canada and Swiss National Bank cut interest rates by 25 bps.  On the other hand, many countries (such as the U.S. and Australia) still wrangled with stubborn inflation levels, and their central banks held existing rates steady.  In Asia, most central banks left their interest rates unchanged, and most Asian currencies have depreciated against the U.S. dollar during the first half of the year.  One exception was the Hong Kong dollar, which is pegged to the U.S. dollar and flipped the trend of three continuous months of weakening in Q1 with three consecutive months of appreciation against the U.S. dollar in Q2.

In the U.S., the S&P 500® continued to break records as it closed June and Q2 with gains of 3.47% and 3.92%, respectively, bringing its YTD return to 14.48%.  10-year U.S. Treasuries yields—as represented by the iBoxx USD Treasuries Current 10 Year—dropped by 29 bps to 4.26% before climbing in the last week to end the month at 4.42%.  Since the start of the year, the 10-year U.S. Treasury yield has gained 50 bps and remained above 4%.

Faced with a weakening currency and challenging economy, the People’s Bank of China (PBoC) opted to keep its benchmark lending rates unchanged.  Chinese-issued U.S. dollar bonds—as represented by the iBoxx USD Asia ex-Japan China—returned 0.70%, while Chinese stocks—as represented by the S&P China 500 (USD)—retreated by 3.01%; this brings their Q2 2024 returns to 1.66% and 0.75%, respectively.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 1

The Asian U.S. dollar bond market ended the month with a 0.82% gain, supported by a 1.31% rise in the high yield segment and a 0.74% rise in investment grade bonds.  The overall market gained 1.21% in Q2 and 2.40% on a YTD basis.  The China Real Estate segment, which was the worst-performing segment in 2023 (down 1.71%), has become the best-performing segment YTD in 2024 (up 11.81%).

All rating and maturity segments rallied this month, with the exception of the CCC 7-10 Year and 10+ Year high yield buckets, which were dragged down by negative returns from Pakistan bonds.  Since the start of the year, the high yield segment has been favored by investors (up 9.72%) and has outperformed the investment grade segment (up 1.35%) on a YTD basis.

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iBoxx Asian Local Currency Indices Monthly Commentary: June 2024

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Kangwei Yang

Director, Fixed Income Indices

S&P Dow Jones Indices

Monthly performance, maturity, yield and duration of the iBoxx ALBI, iBoxx ABF and iBoxx SGD Indices.

As widely expected, the ECB cut its key interest rate by 25 bps in June, while the U.S. Federal Reserve maintained its key rate, citing a lack of progress toward the objective of 2% inflation.  Some other economies also introduced their first rate cuts, including Canada and Denmark, while Switzerland made its second rate cut in 2024.

The movement of the 10-2 Treasury Yield Spread also remained relatively rangebound in June and has been inverted since the second half of 2022.  At the end of the month, it read -0.35%, up 3 bps from May.

As we end the first half of 2024, eurozone government bonds—as represented by the iBoxx € Eurozone—inched up 0.08% in June but pulled back 2.13% YTD.  Similarly, U.S. Treasuries—as represented by the iBoxx $ Treasuries—gained 1.04% this month but declined 0.87% YTD.

In the equities space, the U.S. market—as represented by the S&P 500®—gained 3.47% in June and 14.48% for the first half of the year.  In Asia, the S&P Pan Asia Ex-Japan LargeMidCap (USD) managed a 3.28% gain for the month, but its YTD performance lagged the S&P 500®, standing at 7.25%.  Chinese stocks, as represented by S&P China 500 (USD), gave up some ground in June (-3.01%), though the index managed a slight YTD gain (up 0.75%).

iBoxx Asian Local Bond Index (ALBI)

iBoxx Asian Local Currency Indices: Monthly Commentary: Exhibit 1

Similar to eurozone government bonds and U.S. Treasuries, the iBoxx Asian Local Bond Index (ALBI), which consists of 80% government bonds, also had a small uptick in June, gaining 0.78% in USD unhedged terms.  This month, we saw decent performance in most markets, but the strength of the U.S. dollar against local currencies eroded most of the gains.  Year-to-date, the index performance pulled back 2.15%.

In the local markets, South Korea was the standout performer, up 2.56%.  Coming in second was Hong Kong, with a return of 1.17%.  Indonesia was the only eligible market with a loss, declining 0.17%.

Across the yield curve, the longer-end maturity segments of the overall index drove most gains, namely 10+ (up 1.61%) and 7-10 (up 0.74%).  Among local markets, South Korea 10+ and Hong Kong 10+ led the gains, up 4.46% and 3.92%, respectively.

As of the end of June, the overall index yield contracted by another 16 bps to 3.90%.  Indonesia overtook India as the highest-yielding bond market in the index, posting 7.08%, while China Onshore (2.22%) represented the lowest-yielding market.

 

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U.S. Equities Market Attributes June 2024

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Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

Key Highlights

Index Returns - U.S. Equities June 2024: Exhibit 1

Market Snapshot

June continued the S&P 500’s 2024 gains, with the index posting 7 new closing highs and bringing its YTD total to 31.  The index was up 3.47% for the month (3.59% with dividends) on negative breadth (201 up and 301 down).  This came after May’s broad gain of 4.80% (4.96%) and April’s broad, but limited, pullback (-4.16%, -4.08%), which seems to have become a distant memory.  The 500™ posted a gain of 3.92% for Q2 2024 (4.28%), but (again) breadth was negative (199 down and 304), as the index remained top heavy.  Not that Q1 2024 wasn’t top heavy, but that quarter’s broad gain of 10.16% (10.56%) saw strong positive breadth of 369 up and 134 down.  Year-to-date, the index’s return was 14.48% (15.29%), which annualizes to a 31.18% (33.05%) rate, with breadth positive at 301 up and 200 down (May YTD was 312 up and 189 down).  June posted gains for 12 of its 19 trading days (14 of 22 last month; 69 of 124 YTD).  Of the 11 sectors, 5 were up (10 up last month), while breadth became negative; trading increased 1% (adjusted for days) over May and was down 4% over June 2023.

The S&P 500’s market value increased USD 1.546 trillion for the month (up USD 2.063 trillion last month) to USD 45.843 trillion and was up USD 5.804 trillion YTD; it was up USD 7.906 trillion for 2023 and down USD 8.224 trillion in 2022.

The Dow Jones Industrial Average did not set a new high in June, as it closed at 39,118.86, up 1.12% (1.23% with dividends) from last month’s close of 38,686.32, when it was up 2.30% (2.58%).  For Q2 2024, The Dow® was down 1.73% (-1.27%), while it was up 3.79% (4.79%) YTD.  The one-year return was 13.67% (16.02%), 2023 was up 13.70% (16.18%) and 2022 posted an 8.78% decline (-6.86%).

S&P 500 trading increased 1% (adjusted for trading days) for June, after being up 6% in May, and the year-over-year June trades were 4% lower relative to June 2023; the 12-month June 2024 volume was 6% lower than the prior 12-month period.  The 2023 trading volume was down 1% over 2022; 2022 posted a 6% increase over 2021.

The S&P 500 closed at 5,460.48 (reaching a closing high of 5,487.03), up 3.47% (3.59% with dividends) from May’s close of 5,277.51, when it was up 4.80% (4.96%) from April’s 5,035.69 close (-4.16%, -4.08%).  The Q2 three-month gain was 3.92% (4.28%), bringing the 2024 YTD return to 14.48% (15.29%).  The one-year period was up 22.70% (24.56%), the 2023 return was up 24.23% (26.29%) and the 2022 return was -19.44% (-18.11%).

Target prices continued up, as the S&P 500’s one-year Street consensus target price increased for a seventh month to 5,972, a 9.4% gain (11.6% last month) from the current price and up from last month’s 5,890 and 5,766 the month before that, which followed 11 consecutive months of gains (which was after 9 consecutive months of declines).  The Dow target price also increased for the seventh month, after two consecutive months of declines, which was after three consecutive months of gains, to USD 43,158, a 10.3% gain (12.0%) from now (42,955, 42,808).

The Federal Reserve said all 31 big banks passed their annual stress test, which included a simulation of a 10% U.S. unemployment rate, a 32% decline in housing prices and a 40% drop in commercial real estate.  After the end of the month, the banks started to announce their intent to increase their dividends, as well as update their share repurchase program.

OPEC+ (Organization of the Petroleum Exporting Countries and other countries, including Russia) extended its production cuts (which started in Q4 2022) of 5.86 million barrels a day (5.7% of global production) into 2025, although it was not clear at what level the cuts may be set.

The Congressional Budget Office (CBO) raised its federal budget deficit forecast for fiscal 2024 from USD 1.6 trillion (February 2024) to USD 2 trillion, citing USD 300 billion in extra spending (mostly due to reducing student loan balances), as corporate taxes were below expectations.  The CBO also reported that federal interest payments for Q1 2024 (USD 1.059 trillion) surpassed spending on defense (USD 1.030 trillion), as interest costs were seen as still increasing.

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iBoxx USD Asia Ex-Japan Monthly Commentary: May 2024

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Kangwei Yang

Director, Fixed Income Indices

S&P Dow Jones Indices

May 2024 Commentary

On June 6, 2024, the European Central Bank (ECB) announced an anticipated first interest rate cut, with a 25 bps drop to 3.75%.  Other central banks have also made moves to lower their key rates in May, including Sweden, Czech Republic and Brazil.  The only change in Asia came from Mongolia (down 100 bps to 11%). The FOMC will meet on June 11 and 12 to discuss its next course of action.

In the U.S., the S&P 500® gained 4.80% in May, recovering its losses from the prior month.  U.S. Treasuries—as represented by the iBoxx $ Treasuries—gained 1.51%, while its yield dropped by 19 bps to 4.71%.

In China, the first batch of CNY1 trillion  ultra-long-term special treasury bonds was issued this month; the proceeds of this bond will be used for some specific areas, including science and technology innovation and food and energy security.  At the same time, there were no changes to the loan prime rate in China, which was last changed in August 2023.  So far this year, China-issued U.S. dollar bonds—as represented by the iBoxx USD Asia ex-Japan China—gained 2.61%, with high yield bonds (10.37%) outperforming investment grade bonds (up 1.60%).  Chinese stocks—as represented by the S&P China 500 (USD)—were also up in May (0.64%), extending their gains from April.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 1

It was positive month for Asian U.S. dollar bonds, with gains across most segments of the market.  The overall index clawed back its losses from April and ended the month gaining 1.48%.  High yield bonds (up 2.14%) outperformed their investment grade counterparts (up 1.37%) again.  Year-to-date, the disparity is even clearer, as Asian high yield bonds returned 8.30% compared to 0.60% from investment grade.  Within Asian U.S. dollar bonds, investors had a clear preference for credit over sovereigns thus far in 2024, as non-sovereigns gained 2.00% while sovereigns retreated 0.98%.

The China Real Estate segment continued its momentum from the past couple of months, and gained another 6.15% in May, while China local government financing vehicles (LGFVs) inched up by 0.60%.  Overall, China USD bonds gained 1.34% this month (and 5.04% over the past 12 months).

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