After a reasonably strong start to the year, Asian credit was impacted by the sell-off in USTs in late May and early June. Total return stood at c.1.4% as of 10 June. HY corporates have been the clear outperformer - the spread rally and the carry element boosted the sector's YTD total returns to c.4.3%.
According to Standard Chartered, Asian credit will return c.4.7% for the full year, indicating an incremental return of c.3.3ppt for the rest of 2015, and carry is likely to be the main driver of total returns for the remainder of the year.
Further, the bank adds, Asian HY corporates is expected to outperform, generating a total return of c.5.8ppt for the rest of 2015; this implies a full-year return of c.10% and most of this return is likely to come from carry; spread tightening of only c.25-30bps is seen, as the sector has already enjoyed a decent rally in H1-2015.
"Sovereigns is likely to underperform, as USTs may remain a drag on total returns. Total-return for sovereigns is c.2.9ppt for the rest of 2015; whereas, just c.5-10bps of spread tightening is expected, given that spreads are already close to their tight levels. Similarly, we expect returns of c.2.8-3.0ppt for high-grade (HG) corporates and Asian financials (dominated by seniors), given limited room for spread compression and the drag on returns from volatile UST yields", said Standard Chartered in a report on Wednesday.
