Fixed income solutions - April 2021

 

Greater China

  • Investors interested in gaining exposure in Asia high yield (HY) can consider investing in Chinese HY property bonds, which represent about 40% of the Asia HY universe. The fundamental impact on the sector from COVID-19 is manageable, in our view, and valuations are attractive relative to historical levels.
  • Sales growth in 2021: During market downturns, top developers usually gain more share. In January and February, after sales has grew 121% y/y. CIO remains confident that the covered 26 developers will achieve 5% sales growth on average in 2021.
  • Developers credit metrics improving: Out of 30 developers that reported their FY20 results, around one-third have achieved one-notch improvements as developers actively reduce leverage by accelerating sales, debt control, and increasing equity by spinning off subsidiaries.
  • Rebalance amid policy headwinds: CIO reminds investors that there are quite a few call risks for 2023 bonds which are trading above theircall prices. Depending on duration, CIO now holds Fair or Expensive ratings on the HY bonds yielding less than 5%.
  • Potential switches: CIO expects BB index yield to widen 50bps to 6.8%, and the B index yield to compress 30bps to 9.5% in view of valuations level in 2014 and 2018. CIO suggests moving out of long-dated IG bonds with yields below 3%, BB below 4%, and B below 5%, and switching into short-dated bonds with credit improvement or attractive valuations.

Name

Name

Cpn (%)

Cpn (%)

Maturity

Maturity

Ccy

Ccy

Price

Price

YTM

YTM

Call Date

Call Date

YTC

YTC

Moody's

Moody's

S&P

S&P

Fitch

Fitch

Coupon Reset

Coupon Reset

CIO

CIO

ISIN

ISIN

Name

Agile Group Holdings Ltd

Cpn (%)

6.875

Maturity

perp

Ccy

USD

Price

102.29

YTM

9.34

Call Date

04/12/2023

YTC

5.61

Moody's

Ba3

S&P

-

Fitch

-

Coupon Reset

H15T5Y + 921.6

CIO

Attractive

ISIN

XS2003471617

Name

KWG Group Holdings Ltd

Cpn (%)

5.875

Maturity

10/11/2024

Ccy

USD

Price

101.86

YTM

5.30

Call Date

10/11/2021

YTC

7.48

Moody's

-

S&P

-

Fitch

BB-

Coupon Reset

-

CIO

Fair

ISIN

XS1716631301

Name

Central China Real Estate Ltd

Cpn (%)

6.875

Maturity

08/08/2022

Ccy

USD

Price

100.00

YTM

6.86

Call Date

088/08/2021

YTC

12.37

Moody's

B1

S&P

-

Fitch

BB-

Coupon Reset

-

CIO

Attractive

ISIN

XS2037190514

Name

New Metro Global

Cpn (%)

4.8

Maturity

15/12/2024

Ccy

USD

Price

101.48

YTM

4.36

Call Date

15/12/2022

YTC

5.02

Moody's

-

S&P

BB

Fitch

BB+

Coupon Reset

-

CIO

Fair

ISIN

XS2270462794

Name

Greenland Holding Group Co Ltd

Cpn (%)

6.75

Maturity

25/06/2022

Ccy

USD

Price

93.65

YTM

12.42

Call Date

-

YTC

-

Moody's

Ba2

S&P

-

Fitch

-

Coupon Reset

-

CIO

Attractive

ISIN

XS2016768439

Name

RKPF 2019 A LTD

Cpn (%)

6.7

Maturity

30/09/2024

Ccy

USD

Price

106.69

YTM

4.61

Call Date

30/09/2022

YTC

4.24

Moody's

Ba3

S&P

BB

Fitch

-

Coupon Reset

-

CIO

Fair

ISIN

XS2057076387

Name

Powerlong Real Estate Holdings

Cpn (%)

7.125

Maturity

08/11/2022

Ccy

USD

Price

104.89

YTM

4.12

Call Date

08/11/2021

YTC

5.27

Moody's

B2

S&P

-

Fitch

-

Coupon Reset

-

CIO

Attractive

ISIN

XS2078556342

  • End 2020 an executive Order barred US persons from investing in companies which the US Department of Defense (DoD) had designated as "owned or controlled by the Chinese military". UBS IB identifies about 140 listcos controlled or majority owned by the 31 companies on the DoD's "Communist Chinese military companies" list, which narrow the list of about 140 companies to 35 names with net US-held positions greater than US$30m, using quarterly US fund filings posted by Thomson Reuters.
  • Ranking by estimated net position sell-down days : Among the 35 names, ranked by estimated net position sell-down days, China Communication Services, COLI, China Overseas Grand Oceans, China Mobile and CRRC are the top five. Nine of the 35 names have ≥15 days of estimated sell-downs, and three have ≥31 days of estimated sell-downs.
  • Ranked by net long US-held positions, China Mobile, COLI, Hikvision, China Tower and China Telecom were the top five. US investors hold considerable short positions in several companies. For example, US-held short positions in Nexteer are equivalent to 92% of US-held long positions, and the figure for Far East Horizon is 51%.
  • CIO is of the view that EO will have limited impact on the fundamentals of the named companies. This is because
    1. Most of them are 100% or majority owned by the China’s central SASAC and enjoy strong shareholder support;
    2. They are flagship companies in strategically important industries to China, and have solid fundamentals and multiple funding sources;
    3. Their businesses have very limited exposure to the US market (with the exception of ChemChina);
    4. They have limited dependence on international/US investors, as their funding needs can be largely met by Chinese banks and onshore bond markets.
  • Recently onshore debt defaults by three state-owned enterprises (SOEs) in China do not portend a contagion as we view them as standalone cases and do not see a systemic deterioration of the country's SOEs.
  • Any spillover into the offshore market should be limited due to structural differences between the two markets. CIO expects SOEs and localgovernment financing vehicles (LGFVs) under our coverage to continue receiving strong government support

Name

Cpn (%)

Maturity

Ccy

Price

YTM

Call Date

YTC

Moody's

S&P

Fitch

Coupon Reset

CIO

ISIN

China Huarong International Ho

4.25

perp

USD

104.11

6.64

30/09/2025

3.26

-

-

BBB

H15T5Y + 697.9

Fair

XS2235973943

China National Bluestar Group

3.875

perp

USD

101.36

6.46

24/06/2023

3.24

Baa3

-

BBB

H15T3Y + 665.1

Attractive

XS2183820617

China State Construction Inter

4

perp

USD

101.97

5.72

03/12/2024

3.42

Baa3

-

-

H15T5Y + 541

Fair

XS2084426514

China Jinmao Holdings Group Lt

4.25

23/07/2029

USD

98.85

4.42

-

-

Baa3

-

-

-

Fair

XS2030348903

Shandong Hi-Speed Group

4.3

perp

USD

102.43

7.27

01/08/2024

3.52

A3

-

A-

H15T5Y + 744.5

Attractive

XS2032636438

  • Stronger CNY supporting CNH bond returns
    • The Chinese yuan has appreciated almost 10% against the USD since the end of May last year, and we think the rise is set to continue in 2021. While the pace may be more moderate, the same factors that brought USDCNY below 6.50 will keep driving the currency pair lower.
    • Our FX team forecasts USDCNY at 6.20 by year-end.
    • The case for a stronger CNY, or at least a CNY that benefits from a broadly weaker USD, remains a given for us. China continues to offer a very compelling growth story versus other key economies at present. Europe and the US still require plenty of policy support to reach cruising speed. In that context, China's more balanced approach towards short-term monetary policy support should provide CNY investors with a firm carry of around 250bps versus the USD depending on the investment tenor.
    • FTSE Russell on 24 September announced it plans to include Chinese government bonds (CGBs) in its flagship product, the World Government Bond Index (WGBI)
    • Although note that onshore bond market is still not readily accessible to offshore retail investors
  • CNH bonds offer yield-pickup vs USD bonds from similar issuers in IG space. Given the liquidity constraint, we suggest a hold-to-maturity approach for most CNH bond investments. On the flip side, though, prices of CNH bonds tend to be less volatile than USD bonds. With yields ranging from high 2% to low 3% for 1–4 years, we think our covered IG CNH bonds offer good, stable carry for investors with CNH liquidity. If our view holds, CNH bonds should deliver 5% FX gains to USD-based investors in 2021.

Name

Name

Cpn (%)

Cpn (%)

Maturity

Maturity

Ccy

Ccy

Price

Price

YTM

YTM

Call Date

Call Date

YTC

YTC

Moody's

Moody's

S&P

S&P

Fitch

Fitch

Coupon Reset

Coupon Reset

CIO

CIO

ISIN

ISIN

Name

CHINA GOVT BOND

Cpn (%)

2.1

Maturity

27/07/2022

Ccy

CNY

Price

99.51

YTM

2.48

Call Date

27/07/2022

YTC

-

Moody's

-

S&P

-

Fitch

-

Coupon Reset

-

CIO

Fair

ISIN

HK0000622438

Name

CHINA GOVT BOND

Cpn (%)

3.39

Maturity

21/05/2025

Ccy

CNY

Price

103.46

YTM

2.51

Call Date

21/05/2025

YTC

-

Moody's

A1u

S&P

-

Fitch

-

Coupon Reset

-

CIO

Fair

ISIN

HK0000251337

Name

AGRICUL DEV BANK

Cpn (%)

2.6

Maturity

11/08/2023

Ccy

CNY

Price

99.83

YTM

2.67

Call Date

11/08/2023

YTC

-

Moody's

-

S&P

A+

Fitch

-

Coupon Reset

-

CIO

Fair

ISIN

HK0000622156

Name

AGRICUL DEV BANK

Cpn (%)

3.05

Maturity

27/10/2023

Ccy

CNY

Price

100.94

YTM

2.67

Call Date

27/10/2023

YTC

-

Moody's

-

S&P

A+

Fitch

-

Coupon Reset

-

CIO

Fair

ISIN

HK0000646965

Emerging Market / Asia

  • Emerging market (EM) credit has enjoyed a substantial recovery from the sharp sell-off in April and May of last year, but lower-rated names (BBs, Bs) still provide opportunities for investors to pick up value, in CIO's view.
  • The pandemic has exposed EM sovereigns, businesses, and financial systems to multiple shocks. However, a gradual lifting of lockdown measures, combined with supportive policymaking, should drive a sequential improvement in economic data. Asset prices have recovered in recent months, but more upside is possible as long as fundamentals continue to improve.
  • CIO also see the US dollar weakening, which will likely aid EM credit fundamentals.
  • The worst is therefore not over in terms of deteriorating credit fundamentals, and corporate default rates may increase a bit further, but our calculations suggest that we are near the peak. CIO also notes that spreads still compensate investors for the deterioration in credit quality due to the crisis.
  • Despite the headwinds, we think EM bonds offer opportunities. First, we expect global economic growth to recover in the coming quarters, offering greater support to the more cyclical developing economies than to their developed peers. Second, many countries and businesses entered the present crisis on a sounder footing than going into the 2008–09 global financial crisis. And last, the unprecedented reaction by the world's largest central banks should help address liquidity needs in the near term and very likely prolong the hunt for yield.
  • Macau gaming - Given the latest vaccine developments, CIO become incrementally positive on the recovery trajectory in 2021 for Macau Gaming names. With a more constructive outlook for operators’ recovery following the recent vaccine developments, and low default risks, we continue to like Macau gaming bonds for carry
  • Policy is the most important driver of long-term rates. While economic normalization and additional large fiscal stimulus will put upward pressure on long-term rates in the US, central banks have stated that they will withdraw stimulus much later than in previous cycles as the recovery kicks in. As such, CIO anticipates the path to be moderate, with potential spikes offset by central banks’ active management through balance sheet expansion. On credit, after the strong spread compression, we are moving emerging market bonds to neutral
  • CIO's advise for investors is to view the recommendations in this theme as high-risk opportunities and add them accordingly to a diversified portfolio.

Name

Name

Cpn (%)

Cpn (%)

Maturity

Maturity

Ccy

Ccy

Price

Price

YTM

YTM

Call Date

Call Date

YTC

YTC

Moody's

Moody's

S&P

S&P

Fitch

Fitch

Coupon Reset

Coupon Reset

CIO

CIO

ISIN

ISIN

Name

NWD FINANCE(BVI)

Cpn (%)

5.25

Maturity

Perp

Ccy

USD

Price

107.38

YTM

7.14

Call Date

22/03/2026

YTC

3.62

Moody's

-

S&P

-

Fitch

-

Coupon Reset

H15T5Y + 788.9

CIO

Attractive

ISIN

XS2132986741

Name

NWD FINANCE(BVI)

Cpn (%)

6.25

Maturity

Perp

Ccy

USD

Price

105.17

YTM

5.94

Call Date

07/03/02024

YTC

4.36

Moody's

-

S&P

-

Fitch

-

Coupon Reset

-

CIO

Attractive

ISIN

XS1960476387

Name

ELECT GLOBAL INV

Cpn (%)

4.1

Maturity

Perp

Ccy

USD

Price

101.37

YTM

3.74

Call Date

03/06/2025

YTC

3.74

Moody's

Baa2

S&P

-

Fitch

BBB

Coupon Reset

H15T5Y + 288.7

CIO

Attractive

ISIN

XS2123115029

Name

Studio City Finance Ltd

Cpn (%)

6

Maturity

15/07/2025

Ccy

USD

Price

106.25

YTM

4.46

Call Date

15/07/2022

YTC

4.12

Moody's

B1

S&P

BB-

Fitch

-

Coupon Reset

-

CIO

Attractive

ISIN

USG85381AE48

Name

Wynn Macau Ltd

Cpn (%)

4.875

Maturity

01/10/2024

Ccy

USD

Price

102.20

YTM

4.23

Call Date

29/12/2020

YTC

21.84

Moody's

B1

S&P

BB- *-

Fitch

-

Coupon Reset

-

CIO

Attractive

ISIN

USG98149AC46

Name

Olam International Ltd

Cpn (%)

5.35

Maturity

perp

Ccy

USD

Price

101.04

YTM

6.55

Call Date

20/07/2021

YTC

4.06

Moody's

 - 

S&P

 -

Fitch

-

Coupon Reset

H15T5Y + 629

CIO

Attractive

ISIN

XS1452359521

Name

Jollibee Foods Corp

Cpn (%)

3.9

Maturity

perp

Ccy

USD

Price

97.20

YTM

5.07

Call Date

23/01/2025

YTC

5.07

Moody's

 -

S&P

 -

Fitch

-

Coupon Reset

H15T5Y + 478.4

CIO

Fair

ISIN

XS2099563228

Name

CHONG HING BANK

Cpn (%)

3.876

Maturity

26/07/2027

Ccy

USD

Price

101.04

YTM

2.92

Call Date

26/07/2022

YTC

3.07

Moody's

-

S&P

-

Fitch

BB+

Coupon Reset

H15T5Y + 203

CIO

Attractive

ISIN

XS1649885974

Name

San Miguel Corp

Cpn (%)

5.5

Maturity

perp

Ccy

USD

Price

101.94

YTM

8.78

Call Date

29/07/2025

YTC

5.28

Moody's

 -

S&P

 -

Fitch

-

Coupon Reset

H15T5Y + 1023.7

CIO

Fair

ISIN

XS2207320701

Name

FUQING INVT MGMT

Cpn (%)

3.25

Maturity

23/06/2025

Ccy

USD

Price

100.29

YTM

3.18

Call Date

-

YTC

-

Moody's

Baa3

S&P

-

Fitch

-

Coupon Reset

-

CIO

-

ISIN

XS2190467667

Financials

  • Low correlation with Interest Rates - There is no observable correlation between interest rates and AT1s. When correlation between the two seems to be increasing, this is due to the influence of other variables such as whether the market is risk-on or risk-off.
  • Favorable technicals due to lower issuance - AT1 issuance is expected to be lower in 2021. The reduced supply is due to the relatively low number of calls and maturities to be refinanced. Reduced net issuance it is meant to fill the gap up to an efficient level of AT1 & Tier 2.
  • CIO believes that coupons on large European banks will continue to be paid this year. The dividend suspension recommended by both the European Central Bank (ECB)and the Prudential Regulatory Authority (PRA) in the UK does not pertain to AT1coupon payments. In 2019, the amount of dividends distributed by the 25 largest European banks amounted to about EUR50bn, versus a respective coupon payment on AT1s of about EUR13bn. In case a bank had to increase capital, the AT1 market would be needed in order to diversify capital sources and avoid the dilution implied in a capital increase through a rights issue. European banks' solid fundamentals should allow them to withstand a contained disruption period. 
  • Key risks - too many hard-to-handicap but potentially key binary near term events : challenging for UK banks with headline reminders of several existing risks, including: (i) rising COVID-19 case numbers and confirmation that a lockdown of some kind may be sought, (ii) BoE confirming some work is underway to prepare for negative rates, (iii) which may be necessary on a no deal Brexit and as the furlough scheme supporting 9.6m workers concludes next month (current unemployment claimants: 2.7m), (iv) Fin CEN related media reports raise concerns around past anti-money laundering controls and (v) China/US geopolitical concerns, currently centered around news flow around the 'unreliable entities' list.

Name

Name

Cpn (%)

Cpn (%)

Maturity

Maturity

Ccy

Ccy

Price

Price

YTM

YTM

Call Date

Call Date

YTC

YTC

Moody's

Moody's

S&P

S&P

Fitch

Fitch

Coupon Reset

Coupon Reset

CIO

CIO

ISIN

ISIN

Name

Credit Suisse Group AG

Cpn (%)

5.25

Maturity

perp

Ccy

USD

Price

106.81

YTM

4.92

Call Date

11/02/2027

YTC

3.98

Moody's

Ba2u

S&P

BB-

Fitch

BB+

Coupon Reset

H15T5Y + 488.9

CIO

Attractive

ISIN

USH3698DBZ62

Name

ING Groep NV

Cpn (%)

6.5

Maturity

perp

Ccy

USD

Price

111.03

YTM

4.66

Call Date

16/04/2025

YTC

3.69

Moody's

Ba1

S&P

BB

Fitch

BBB

Coupon Reset

USSW5 + 444.6

CIO

Fair

ISIN

US456837AF06

Name

HSBC Holdings PLC

Cpn (%)

6

Maturity

perp

Ccy

USD

Price

109.66

YTM

4.21

Call Date

22/05/2027

YTC

4.25

Moody's

Baa3

S&P

 -

Fitch

BBB

Coupon Reset

USISDA05 + 374.6

CIO

Fair

ISIN

US404280BL25

"Position for a weaker dollar"

  • CIO expects the US dollar to weaken in 2021 due to a recovering global economy and a diminished interest rate differential. To position for this, CIO thinks investors should diversify across G10 currencies or into select emerging market currencies and gold.
  • The US dollar index has already dropped close to 10% from its highs in March 2020, and CIO anticipate renewed weakness in 2021. CIO expect continued large US fiscal deficits at the same time as US private sector savings are starting to fall, exacerbating external funding requirements.
  • In addition, a recovering global economy and heightened focus on US indebtedness are likely to reduce safe-haven demand for the currency. And the interest rate advantage the US dollar previously held over other currencies in recent years has now eroded
  • A diversified set of G10 currencies. CIO sees medium- to long-term upside potential in the EUR, GBP, CHF, and AUD against the US dollar. The euro is well placed to benefit from a recovery in global export demand as the pandemic fades and US stimulus boosts growth. We forecast EURUSD to rise into the 1.20–1.25 range by end-2021. CIO also view the Swiss franc and the Japanese yen as superior safe havens to the US dollar, given that investors could become more concerned about the US’s indebtedness at the same time as the Swiss National Bank relaxes its interventions, and as growth in Asia rebounds.
  • Within Asia, CIO believes the pro-cyclical Southeast Asian currencies have significant rebound potential after having lagged in 2020. The Singapore dollar should benefit from a recovery in global growth. The Chinese yuan offers an attractive risk-reward profile given its stability, coupled with a 2% p.a. yield advantage versus the greenback.

Name

Name

Cpn (%)

Cpn (%)

Maturity

Maturity

Ccy

Ccy

Price

Price

YTM

YTM

Call Date

Call Date

YTC

YTC

Moody's

Moody's

S&P

S&P

Fitch

Fitch

Coupon Reset

Coupon Reset

CIO

CIO

ISIN

ISIN

Name

CIFI Holdings Group Co Ltd

Cpn (%)

5.85

Maturity

19/08/2023

Ccy

CNH

Price

102.08

YTM

5.02

Call Date

19/08/2022

YTC

6.20

Moody's

 -

S&P

BB-

Fitch

BB

Coupon Reset

-

CIO

Attractive

ISIN

XS2218700008

Name

Hyundai Capital Services Inc

Cpn (%)

3.55

Maturity

21/09/2023

Ccy

CNH

Price

100.99

YTM

3.17

Call Date

-

YTC

-

Moody's

 -

S&P

BBB+

Fitch

-

Coupon Reset

-

CIO

Attractive

ISIN

XS2231588034

Name

Sun Hung Kai Properties Ltd

Cpn (%)

3.2

Maturity

14/08/2027

Ccy

CNH

Price

100.14

YTM

3.18

Call Date

-

YTC

-

Moody's

 -

S&P

A+

Fitch

-

Coupon Reset

-

CIO

Attractive

ISIN

HK0000634557

Name

Agricultural Development Bank

Cpn (%)

2.85

Maturity

11/08/2025

Ccy

CNH

Price

99.37

YTM

2.99

Call Date

-

YTC

-

Moody's

 -

S&P

A+

Fitch

-

Coupon Reset

-

CIO

Attractive

ISIN

HK0000622164

Name

Suntec Real Estate Investment

Cpn (%)

3.8

Maturity

perp

Ccy

SGD

Price

100.33

YTM

4.68

Call Date

27/10/2025

YTC

3.73

Moody's

 -

S&P

 -

Fitch

-

Coupon Reset

SISW5Y + 329.5

CIO

Fair

ISIN

SGXF25994876

Name

Frasers Property Ltd

Cpn (%)

4.98

Maturity

perp

Ccy

SGD

Price

101.64

YTM

4.54

Call Date

11/04/2024

YTC

4.45

Moody's

 -

S&P

 -

Fitch

-

Coupon Reset

SDSW5 + 404

CIO

Attractive

ISIN

SGXF71917235

Name

Olam International Ltd

Cpn (%)

5.5

Maturity

perp

Ccy

SGD

Price

101.98

YTM

6.01

Call Date

11/07/2022

YTC

4.20

Moody's

 -

S&P

 -

Fitch

-

Coupon Reset

SDSW5 + 568.5

CIO

Fair

ISIN

SG7DJ3000005

Name

CapitaLand Ltd

Cpn (%)

3.65

Maturity

perp

Ccy

SGD

Price

103.74

YTM

2.70

Call Date

17/10/2024

YTC

2.63

Moody's

 -

S&P

 -

Fitch

-

Coupon Reset

SDSW5 + 220

CIO

Fair

ISIN

SGXF21741271

Name

Singapore Airlines Ltd

Cpn (%)

3.13

Maturity

17/11/2026

Ccy

SGD

Price

99.40

YTM

3.24

Call Date

-

YTC

-

Moody's

 -

S&P

 -

Fitch

-

Coupon Reset

-

CIO

Fair

ISIN

SG76F4000001

Name

BNP Paribas SA

Cpn (%)

4.5

Maturity

perp

Ccy

AUD

Price

102.29

YTM

3.77

Call Date

10/1/2025

YTC

3.88

Moody's

Ba1

S&P

BBB-

Fitch

BBB

Coupon Reset

ADSWAP5 + 337.2

CIO

 

ISIN

FR0013433257

Name

National Australia Bank Ltd

Cpn (%)

4.95

Maturity

perp

Ccy

AUD

Price

132.23

YTM

3.06

Call Date

12/12/2029

YTC

1.14

Moody's

-

S&P

BBB-

Fitch

-

Coupon Reset

BBSW3M + 375

CIO

Attractive

ISIN

AU3CB0269215

Name

Societe Generale SA

Cpn (%)

4.875

Maturity

perp

Ccy

AUD

Price

102.79

YTM

4.37

Call Date

12/9/2024

YTC

4.05

Moody's

Ba2

S&P

-

Fitch

-

Coupon Reset

ADSWAP5 + 403.6

CIO

 

ISIN

FR0013446424

  • Who defines what a green bond is and who can issue it?
    • There is currently no official regulation defining a green bond, and no institution that can officially assign or withdraw a green label. Theoretically, any issuer can label a newly issued bond as a green, social, or sustainability (GSS) bond. However, in practice, an established process exists to assure investors of adherence to minimum standards. For each type of GSS bond, the International Capital Markets Association (ICMA) has published voluntary principles and guidelines that define the eligible use and management of proceeds, the evaluation process for projects, and the regular reporting to investors.
    • Before launching their first green bond, most issuers typically publish a framework in which they define the eligible project categories and cover all the criteria required by the ICMA principles. A specialized auditor then provides a second opinion on the framework. Once a green bond is out, the issuer starts to disclose the details regarding the allocation of funds to specific projects. In some cases, an external verification can be made available to investors. Over the life of the bond, the issuer is also expected to report at least annually on details regarding the use of proceeds and the environmental impact achieved by its green projects.
    • In the US market, some green bonds are currently lagging these standards, where self-identification is far more common for municipal issuers who dominate the US green bond market. But we believe that green bond activity in the US corporate market should pick up and that companies will follow the trends set by their global competitors.
  • The green bond market will soon hit the USD 1tr mark. In 2020, USD 215bn worth of new green bonds have been issued, complemented by USD 133.5bn of social and USD 61.4bn of sustainability bonds, taking total issuance of environmental, social and governance (ESG) labeled bonds to a new record of over USD 400bn. Innovations such as sustainability-linked bonds are gaining ground, demonstrating the developing nature of this still fairly young sustainable investment (SI) asset class.
  • For issuers with sound ESG strategies, we saw a small "greenium" (i.e., a green bond valuation premium) emerging in the market, and strong investor demand rewarded some issuers with lower yields when issuing new bonds. Overall, green bonds achieved total returns similar to non-green ones.
  • The market for green bonds in Asia Pacific has also been growing steadily in recent years
  • Risk premiums for traditional bonds widened much more than for green bonds in 1H20. Such diverging performances have been driven by green bonds’ more defensive sector and rating compositions.
  • We view green bonds as a sound, sustainable alternative to global IG bonds. The green bond market has a more defensive sector and risk profile and benefits from demand for sustainable investments outgrowing supply.

Name

Name

Cpn (%)

Cpn (%)

Maturity

Maturity

Ccy

Ccy

Price

Price

YTM

YTM

Call Date

Call Date

YTC

YTC

Moody's

Moody's

S&P

S&P

Fitch

Fitch

Coupon Reset

Coupon Reset

CIO

CIO

ISIN

ISIN

Name

CIFI Holdings Group Co Ltd

Cpn (%)

5.95

Maturity

20/10/2025

Ccy

USD

Price

108.04

YTM

4.08

Call Date

20/07/2023

YTC

3.72

Moody's

-

S&P

BB-

Fitch

BB

Coupon Reset

-

CIO

Fair

ISIN

XS2205316941

Name

China Jinmao Holdings Group Lt

Cpn (%)

4

Maturity

21/06/2024

Ccy

USD

Price

103.77

YTM

2.85

Call Date

-

YTC

-

Moody's

-

S&P

BBB-

Fitch

-

Coupon Reset

-

CIO

Fair

ISIN

XS2013709220

Name

Toyota Motor Credit Corp

Cpn (%)

2.15

Maturity

13/02/2030

Ccy

USD

Price

108.39

YTM

1.18

Call Date

-

YTC

-

Moody's

A1

S&P

A+

Fitch

A+

Coupon Reset

-

CIO

Fair

ISIN

US89236TGU34

Name

ING Groep NV

Cpn (%)

1.4

Maturity

1/7/2026

Ccy

USD

Price

102.21

YTM

0.95

Call Date

1/7/2025

YTC

0.9

Moody's

Baa1

S&P

A-

Fitch

A+

Coupon Reset

H15T1Y + 110

CIO

Fair

ISIN

USN4580HAC18

Name

Apple Inc

Cpn (%)

2.85

Maturity

23/02/2023

Ccy

USD

Price

105.5

YTM

0.26

Call Date

23/12/2022

YTC

0.05

Moody's

Aa1

S&P

AA+

Fitch

-

Coupon Reset

-

CIO

Fair

ISIN

US037833BU32

Oil and Gas

  • Following a substantial recovery in emerging market credit, we still see opportunities in the oil and gas space, as we continue to hold a positive outlook on oil prices over the next 12 months. But selectivity remains key given higher cash prices and lingering uncertainties.
  • OPEC and its allies (OPEC+) settled for a cautious approach at their March meeting. The group agreed to roll over its current production for another month, while allowing Russia and Kazakhstan to increase their output by 0.15mbpd in April. This decision was a big surprise since market participants had expected an increase of 1.5mbpd. With the latest agreement, Saudi Arabia’s voluntary cut will extend through the end of April, and the country’s energy minister indicated those barrels will return in a gradual, rather than a fast and furious, way.
  • As a result, we expect Brent to reach USD 73/bbl by midyear and to trade at USD 75/bbl in December 2020. Key things to watch over the coming months are the response of US shale to higher prices, compliance rates among OPEC+ players, and Iranian production volumes.
  • Among the energy-exporting emerging markets we cover, the Gulf Cooperation Council nations and Russia are best positioned to weather energy prices volatility, in CIO's view.
  • In the corporate space, we continue to look for quality investment grade names in Asia
  • In CEEMEA, we prefer producers in Russia and the Middle East given their low production costs and ability to adjust operating and capital expenses to protect their balance sheets. In Latin America, bond valuations have improved and are complemented with either strong balance sheets or a high probability of government support.

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