Asian Fixed Income: Mega 30 in China Versus U.S.

Despite the lackluster performance of Chinese bonds in 2017, the market value tracked by the S&P China Bond Index continued to expand and reached CNY 56.9 trillion (USD 9 trillion) as of Feb. 26, 2018. While it is the world’s third-largest bond market and remains far from the giant U.S. bond market (valued at USD 24.7 trillion, as represented by the S&P U.S. Aggregate Bond Index), global investors are increasingly interested in the opportunities in this growing market.

In light of this, let’s review the key characteristics of the two corporate bond markets. We first ranked and sorted the 30 largest bonds in the S&P China Corporate Bond Index and compared them against the S&P 500 Bond Mega 30 Indices.[1]

Key Highlights

  • 17 out of 30 Chinese corporate bonds had their issuers rated as investment grade by at least one rating agency (S&P Global Ratings, Moody’s, or Fitch), while the rest of the issuers were either unrated or rated high yield.
  • The Banks and Other Financial industries dominated and represented over 86% of the industry sector exposure in China (see Exhibit 1).
  • The U.S. has more diversified industry sector profiles in both investment-grade and high-yield indices; besides Banks and Other Financial, the Service Company industry, including pharmaceuticals and retail stores, has a sizeable representation, followed by Manufacturing and Energy Company (see Exhibit 2).
  • As of Feb. 26, 2018, the weighted yield-to-maturity of the 30 largest bonds from the S&P China Corporate Bond Index was 5.01%, comparable to the 5.08% of the S&P 500 Bond Mega 30 High Yield Index and higher than the 3.90% of the S&P 500 Bond Mega 30 Investment Grade Index.
  • The top five issuers of the three indices are listed in Exhibit 3.

Looking at performance since Sept. 30, 2015, the S&P 500 Bond Mega 30 High Yield Index outperformed and rose 28%, while the S&P 500 Bond Mega 30 Investment Grade Index gained 9.04% and the S&P China Corporate Bond Index gained 6.35%.

[1]   The S&P 500 Bond Mega 30 Indices are designed to measure 30 of the largest bonds from the S&P 500 Investment Grade Corporate Bond Index and the S&P 500 High Yield Corporate Bond Index. The index series is designed to be a more liquid and investable subset of the S&P 500 Bond Index, which seeks to track debt issued by companies in the S&P 500.

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