Bonds Weekly: GLOBAL YIELDS HIGHER AS OIL
PRICE REBOUND STOKES SENTIMENT
iFAST Research Team
17 May, 2017
Chart 1: YTMs on Safer Bond Segments
Corporate
EMEM
Corporate
Bonds
EMEMBonds
Asian
Corporate
Asian
Corporate
05/11/17
04/21/16
05/05/16
07/09/15
Asian
Bonds
Asian
Bonds
05/04/17
04/14/16
04/28/16
07/02/15
US AggregateBond
Bond
US Aggregate
Global
Aggregate
Bond
Global
Aggregate…
G7
G7
00
1 2
2 2
4
2
(%)
(%)
Source: Bloomberg and iFAST Compilations
3 4
4
6 4
5
8
6
6
Chart 2: YTMs on Riskier Bond Segments
Asian HY (BBrated)
Asian HY (BB-rated)
05/11/17
01/19/17
04/21/16
05/05/16
EuropeanHY
HY
European
07/09/15
05/04/17
01/12/17
04/14/16
04/28/16
07/02/15
GlobalHY
HY
Global
USHY
HY
US
00
2 2
2
4
4
4
(%)
(%)
Source: Bloomberg and iFAST Compilations
6
6 8
6
10
8
8
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This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision
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herein are subject to change without notice. Please read our disclaimer in the website.
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WEEKLY REVIEW
Global bond yields rose by 4 basis points last week, as a rebound in oil prices bolstered sentiment
and reinforced expectations for a pick-up in inflation. G7 sovereign bonds and Singapore government
bonds saw their yields increase by 2 basis points and 6 basis points over the week to yield 0.55% and
1.85% respectively. Over in the US credit space, yields of US investment grade corporate bonds
remained unchanged at 3.67%, while yields of Asian bonds rose by 2 basis points.
The riskier segment of global bond markets continued to outperform, roiled by improvements in global
growth prospects. The US high yield market was the best performer last week, as yields fell by 4 basis
points, offering investors a yield of 6.01% when the week ended. Meanwhile, hard-currency
denominated emerging market bonds saw a slight decline in yields from a prior 5.36% to 5.35%.
BOND MARKET OUTLOOK
Last week in Western Europe, the Bank of England (BOE) kept benchmark policy rates unchanged
(at 0.25%). It also opted to retain the current amount of its asset purchases programme. In its
statement release, the BOE mentioned that “consumption growth will be slower in the near term than
previously anticipated before recovering in the latter part of the forecast period as real income picks
up.” The central bank acknowledged that the effects of a weaker Sterling has begun to feed through
to consumer prices, and that “wage growth has been notably weaker than expected”, and expects
inflation to rise further in the next 2 quarters above target. Overall, guidance was slightly more hawkish
this time around as compared to March’s policy update, with the committee stating that “some modest
withdrawal of monetary stimulus” may be appropriate. However, it remains to be seen if policy-makers
will indeed tighten monetary policy going forward as focus is now on the EU negotiations and the
uncertainty hanging over Britain’s transition.
In Southeast Asia, Bank Negara Malaysia (BNM) left its overnight policy rate unchanged at 3.00%, a
move that was largely in line with market expectations. The BNM asserted in its policy statement that
the current “stance of monetary policy is accommodative and supportive of economic activity”.
Malaysia’s economy grew by 4.2% last year, the slowest since 2009, amidst a challenging
macroeconomic environment, but has seen signs of a recovery in recent times, with improvements in
exports and manufacturing activity. The BNM expects the economy to strengthen further, with growth
driven mainly by “domestic demand amid continued wage and employment growth, and the
implementation of new and on-going investment projects”. The recent improvements in global growth
prospects are also likely to support Malaysia’s exports, which will in turn contribute positively to
economic growth. However, downside risks remain, with threats from trade protectionism, geopolitical
developments and commodity prices potentially reigniting financial market volatility.
Bank Indonesia (BI) is the only major central bank scheduled to provide an update on its monetary
policy this week. Market participants are expecting no changes to the seven-day reverse repo rate,
which currently stands at 4.75%.
We have been highlighting the risks of further increases in interest rates (and are still cognisant), and
suggest investors avoid longer-duration developed sovereign debt which is most susceptible to
Fundsupermart.com is a non-advisory online investment platform and we do not provide any online investment advice to clients on a
personal basis. If you have any doubt, please contact our Client Investment Specialist at (+852) 3766 4321.
This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision
should be taken without first viewing a fund's prospectus. Any advice herein is made on a general basis and does not take into account the
specific investment objectives of the specific person or group of persons. Past performance and any forecast is not necessarily indicative of
the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed
herein are subject to change without notice. Please read our disclaimer in the website.
© 2017 iFAST Financial (HK) Limited All Rights Reserved.
rising yields, while opting for shorter duration bond funds which are far less interest rate
sensitive. Short duration bonds are also a better alternative for investors who are seeking shelter from
the volatility and uncertainty seen in financial markets in recent times, with yields of approximately 2 –
3% that is higher than that offered by sovereign bonds, providing an anchor of stability to a portfolio.
As we have advocated, riskier fixed income segments, such as that of high yield bonds, should be
combined with other safer bond segments, to ensure sufficient levels of diversification within one's
fixed income allocation.
Fundsupermart.com is a non-advisory online investment platform and we do not provide any online investment advice to clients on a
personal basis. If you have any doubt, please contact our Client Investment Specialist at (+852) 3766 4321.
This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision
should be taken without first viewing a fund's prospectus. Any advice herein is made on a general basis and does not take into account the
specific investment objectives of the specific person or group of persons. Past performance and any forecast is not necessarily indicative of
the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed
herein are subject to change without notice. Please read our disclaimer in the website.
© 2017 iFAST Financial (HK) Limited All Rights Reserved.