The US-Iran ceasefire has largely held, even if there are sporadic attacks in the Strait of Hormuz, and negotiations on a deal to end the conflict appear bogged down. Still, tail risks of a military escalation and further long-term damage to energy production appear contained, which has resulted in a fall in oil prices from its peak in April. An interim stabilization in the Middle East, alongside prospects of a restoration in shipping along the Strait of Hormuz, has helped to lift global market sentiment.

In Asian credit markets, the energy and utilities sectors have seen the strongest recovery since end March, and have fully reversed early losses following the start of conflict. Both sectors have seen credit spreads narrowing by an average of 27bps and 16bps respectively from their peak. With lesser tensions in the Middle East, the currently tight energy supply picture is worrying, but not necessarily a grave threat. Oil prices are still about 30% below their 2008 peak, and more so in real terms after adjusting for inflation. Higher costs of energy feedstock are thus manageable, even if there are margin pressures from a lack of pass-through to consumers and end-users. The availability of US supplies has provided much relief for global energy markets, with US oil and refined product exports soaring to a record 14.2m bpd in end April, marking a 28% increase from their Jan-Feb levels.

DBS Aggregate Credit Spread or DACS indices show the aggregate credit spread, weighted by market capitalization and modified duration, for Asian corporate USD-denominated straight bonds. The higher is the DACS, the higher is the additional yield that can be earned in credit, and the higher is the perception of credit risks in markets.

Our first visual shows the notional outstanding of bonds from five Asian economies that comprise the Asia ex-Japan (AXJ) DACS index. These five economies are China, Hong Kong, Korea, India and Indonesia.

The second visual shows the notional outstanding split into industry sectors for the aggregate AXJ DACS index, and DACS indices for each of the five economies. Individual economies can be selected via the dropdown.

Our last visual illustrates the DACS index readings over time for AXJ or an individual economy. It is also possible to drill into the constituent sectors of the DACS indices using the second dropdown. Such sectoral DACS indices are shown on an individual economy basis when data is sufficient, and on an aggregated AXJ basis when otherwise.