By Michele Leung
As Asian market participants have become more aware of the importance of portfolio diversification, they have been paying more attention to the U.S. corporate bond market. The S&P 500 Bond Index seeks to measure the broad and relatively liquid U.S. corporate bond market, and it is designed to be a corporate-bond counterpart to the iconic S&P 500, widely regarded as the best single gauge of large-cap U.S. equities. In addition to the popularity of the equity index, Asian market participants should be familiar with some of the index constituents like Apple (NASDAQ:AAPL), JPMorgan Chase (NYSE:JPM), Microsoft (NASDAQ:MSFT), and Wal-Mart (NYSE:WMT).
Since 90% of the index is made up of investment-grade debt from blue-chip companies, it can be viewed as a proxy for the U.S. investment-grade bond market. As of Dec. 26, 2017, the index delivered a YTD total return of 5.52%, while its yield-to-maturity tightened 5 bps to 3.32%.
The S&P 500 Bond Index market value is larger than China’s and Japan’s corporate bond markets; it’s even larger than the sum of all Pan Asia local currency corporate bond markets. The S&P 500 Bond Index currently tracks over 5,000 constituents with a combined market value of USD 4.6 trillion.
Over the past decade, the S&P 500 Bond Index rose 5.66% annually; it outperformed the S&P Pan Asia Corporate Bond Index and the S&P Japan Corporate Bond Index, which gained 4.15% and 1.36%, respectively, in the same period.
Hence, the S&P 500 Bond Index could offer Asian market participants the benefits of familiarity, good returns, and stable yields.
Exhibit 1: Total Return Comparison of the S&P 500 Bond Index, the S&P Pan Asia Corporate Bond Index, and the S&P Japan Corporate Bond Index