Today’s environment is significantly more challenging than that of the past decade. Aside from slowing global economic growth and geopolitical risks, inflation rates have shot up to multi-decade highs. For the credit market, the rapidly rising rates, which depresses bond prices, have resulted in total returns turning negative, even in nominal terms, across most papers regardless of tenor and credit profile. Despite already better-positioning within subordinated and cross-over papers, our model portfolio recorded its first half-year loss of 0.69%.
The SGD corporate credit market in 1H2022 has offered relative shelter. Total returns of SGD credit related indices and funds are higher than Asia (Ex-Japan) bonds in general. The amount of SGD issuances has also held up better, increasing around 6% y-o-y to $11.7 billion, while Asiadollar volumes fell around 40% y-o-y.
However, this relative strength is being tested as existing issues are repriced by new issuances that come in at higher yields, wider spreads and larger new issue concessions. Unlike previous years where investors sought longer-dated bonds and perpetuals in a hunt for yield, the tone has become defensive, with an increased number of issuances with shorter maturities.
