Asian USD credit has delivered a strong performance this year, with average credit spreads now falling below their 2018 record lows. Asian pricing is in line with a buoyant US credit market, yet Asian issuance activity has remained subdued on a year-to-date basis. Thus, limited supply should continue to support Asian credit pricing. On an intra-Asia basis, while there had been a pick-up in ex-China issuance, this should not offset the contraction in China credit issuance as both the LGFV and real estate sectors continue to deleverage.

With spreads being near historically tight levels now, the risk-reward ratio is looking less attractive. Credit market gains are likely to moderate from here, even if defaults remain contained. Scope for further spread compression is also limited by lesser Fed rate cut expectations, with strong US non-farm payrolls reported for March. Bond inflows could become less vigorous if the timing and magnitude of Fed rate cuts look to be later and smaller than previously thought.

DBS Aggregate Credit Spread or DACS indices show the aggregated z-spread for Asian corporate USD-denominated straight bonds. The higher the DACS, the higher is the yield that can be earned by investors in credit, and the higher is the perception of credit risks in markets. Individual Z-spreads are weighted by their dollar amount outstanding and modified duration in the DACS.

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

Next, the second visual shows the notional outstanding split into industry sectors for the aggregate AXJ DACS index, as well as individual DACS for each of the five economies. Selection of indiviudal economies can be made via the dropdown list.

Our last visual illustrates the evolution of DACS indices over time for AXJ or a selected economy. Furthermore, individual DACS for all the constituent sectors can be selected using the second dropdown. Such sector DACS will be shown on an individual economy basis where data is available, or on an aggregated AXJ basis.