Dan Buchanan: Welcome to our listeners for the next edition of our podcast series. My name is Dan Buchanan, Senior Business Development Manager of Exchange Traded Products here at Aberdeen Standard Investments. Today we will focus on Asian fixed income with an update from our Asian fixed income team based in Singapore.
Let us begin with the highlights. Yields for most Asia Pacific local currency government bonds rose in March alongside volatile US Treasuries, notably China and India bucked the downtrend and led other markets on total return basis. Meanwhile, Asian currencies depreciated against the strengthening US dollar, but outperform their emerging market peers.
Asia credit delivered negative total returns. Rising US Treasury yields again overwhelmed positive returns from tighter spreads across both investment grade and high yield bonds. Looking ahead, the recent consolidation provides investors an opportunity to reposition risk. We remain optimistic about Asian currencies and rates.
March was marked by volatility in US Treasuries which led agent local currency bond yields higher. Risk sentiment improved subsequently on better than expected fourth quarter US GDP growth and other economic data along with rising commodity prices. In addition, US President Joe Biden's $2.2 trillion infrastructure plan and the doubling of his vaccine rollout goal fueled appetite for risk assets. Meanwhile, the Federal Reserve left rates unchanged, but raised inflation and GDP expectations for the year. It also reaffirmed that it would maintain supportive financial conditions, but may not add to its existing purchasing program.
By month end, the 10 year benchmark yield rose by 33 basis points. Elsewhere tensions with China escalated. The US and its allies impose sanctions on Chinese officials for alleged human rights abuses in Xingbang, prompting retaliation from Beijing.
During the month the initial jump in oil prices dissipated after our new lockdowns in Europe heightened demand concerns.
Asian currency is weakened against the US dollar with the exception of the Indian rupee, which appreciated by 0.5%. It was among the best performing currencies in Asia, outperformed by only a few emerging market and G10 currencies. Conversely, the Bahts and the Ringgit lagged amid foreign outflows on the back of growth concerns. At the same time, the Yuan stumbled on conservative GDP targets and rising geopolitical tensions, whereas the Won slid 0.84% regaining some lost ground towards the month end as risk appetite improved. Against this backdrop yields for most Asian local currency bond yields rose because of volatile US Treasuries, but China and India bucked the trend.
Related to US dollar denominated credit, Asia credit delivered negative total returns in March. Rising US Treasury yields again overwhelmed positive returns from tighter spreads across both investment grade and high yield bonds. Markets were generally buoyant on US President Joe Biden's proposal of a $2 trillion infrastructure plan and the doubling of his vaccine rollout goal. But investors became increasingly skittish around negative news of idiosyncratic events such as a potential curb on Chinese internet lenders fee based business that could affect their profitability. Fund flows into Asian credit slowed in the face of rising US Treasury yields.
Finally, looking ahead, US rates have consolidated since mid March, with 10 year yields trading around 1.6 to 1.75%. This is supported by robust economic data and are rosier leading indicators that touched multi year highs exceeding expectations. Similarly, corresponding data in Asia were also firm. On the other hand, a resurgence in COVID-19 cases globally has reinstated control measures.
While some consolidation and rates was anticipated, given the difficulty in estimating to what degree yields could pull back, funds generally retain short duration positioning for it was expected to be a further rise in rates in the medium to long term as growth continues to recover and policy gradually normalized. As a result, we continue to seek out opportunities and rallies to extend short duration risk.
The interest rate environment is mixed but has favored positioning, with Malaysian yields falling more than 20 basis points, while yields and markets such as Hong Kong, South Korea and Singapore rose. Asian currencies are likely to remain volatile. We saw the South Korean Won stabilizing as it move through the seasonally weaker period while finding support from the growth environment. The Ringgit also strengthened towards the end of the month. However, the Rupee, Baht, Singapore dollar and you Yuan all lost ground against the dollar. Looking ahead, we remain optimistic about Asian currencies in 2021.
And thank you to our listeners for tuning in. You can find out more about the funds at www.aberdeenfax.com, www.aberdeenfco.com or www.aberdeenfap.com. Do look out for future episodes.
