(SOURCE: iFAST Research Team)
TALK of tapering its asset purchase programme by the Fed sent US 10 year treasuries yields soaring, with the benchmark note hitting a rate of 2.53 per cent on June 21, 2013 following the ‘shocking’ revelation by Ben Bernanke that should economic data improve and hit certain targets, then a reduction in the Fed’s asset purchase programme would ensue.
With what is commonly known as the risk-free rate soaring, the risk premium investors demand in order to hold other assets rose, causing the spread between US Treasuries and the other bond segments to widen and thus, sending yields higher and prices down.
Bond yields continued to rise across the board, hurting the performance of fixed income funds across the board.
Emerging market debt was the worst performer of the month, with its yield rising by 83.8 basis points (bps) to end the week with a yield of 5.66 per cent, up significantly from its yield of 3.95 per cent seen on May 9, 2013, as capital outflows saw currencies depreciate; leading to more dumping their bond holdings and initiating something of a negative cycle.
US High Yield saw its yield rise by 22bps, sending its yield to 6.61 per cent for the week as compared to its yield of just 5.09 per cent on May 9, 2013.
As the riskier bond segments saw their yields rise, the safer segments of fixed income were not spared either as they saw their yields rise.
The US Investment Grade bond segment saw their yields rise by 37.9bps, offering investors a yield of 3.97 per cent for the week ended June 21, 2013.
The best performing safer bond segment was the Malaysia Government Securities, which saw their yields rise by 1.2bps to yield 3.33 per cent on June 21, 2013.
Over the week, the Malaysian ringgit extended its weakness against US dollar and SG dollar by 2.8 per cent and one per cent respectively.
Weaker ringgit appears as a form of currency gain which helps to cushion the foreign bond funds performance.
AmTactical Bond (Global Bond Fund) and RHB Asian Total Return Fund advanced 0.62 per cent and 0.44 per cent respectively while OSK-UOB Emerging Markets Bond Fund declined 1.21 per cent.
Meanwhile, the target fund of RHB Asian Total Return Fund and OSK-UOB Emerging Markets Bond Fund slid 1.59 per cent and 2.52 per cent respectively in SG dollar terms.
Funds that utilised currency hedging liked Hwang Select Bond Fund and Hwang Select Income Fund did not enjoy the currency gain in this case, each fell 0.47 per cent and 0.53 per cent last week.
Among local bond funds, pure bond funds rose 0.02 per cent while equity-exposed bond funds (up to 30 per cent equity exposure) declined 0.06 per cent on average last week. FBM KLCI Index fell 0.36 per cent and closed lower at 1755.85 points last week.