BlackRock Asia Weekly Market Views

3 Nov 2015

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Weekly Highlights

Total returns on Asian credit was flat over the past 2 weeks with positive spread returns compensating for negative returns due to higher US treasury yields. Credit spreads continue to compress as the prospect of more monetary stimulus from the European Central Bank providing a lift on risk assets.
Asian credit was further supported after further monetary easing by the People’s Bank of China which included not just cuts to benchmark rates but also cuts to the reserve requirement ratios. While the October statement from the FOMC was hawkish and led to higher US treasuries (negative treasury return), credit spreads were negatively correlated to US treasury yields and average yields on Asian credit remained stable. High yield outperformed investment grade overall with the demand for yield unabated. The better market sentiment boosted new issuance but the supply picture continues to underwhelm, providing a strong technical support for Asian credit.
The divergence in global rates and central bank action continues to play out in the FX markets. With major Asian central banks in easing mode, Asia currencies weakened against the US dollar. Average bond yields were marginally higher but income from bond coupons made up for any negative returns due to that. The exception was renminbi bonds which saw positive returns against the US dollar as yields moved lower post the cuts to the benchmark rates and reserve requirement ratio. In addition, the renminbi remains quite stable against the US dollar with continued convergence in the onshore and offshore exchange rates. Despite the weaker performance in US dollar terms, Asian local currency bonds performed well in Euro terms with Asian currencies appreciating against the Euro.

Country views from the BlackRock Asian Fixed Income Team

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