Global Market Update
• The benchmark 10-year UST yield jumped ahead of inflation data readings later on this week.
• Yield on 10-year UST note was up 6 bps to 1.96% last night. Meanwhile the 2-year UST yield inched 5 bps higher to 1.34%.
• Consensus estimated US inflation to rise by +0.5% MoM/+7.3% YoY in Jan-22. As inflation continued to rise, hawkish stance from the Fed is likely.
• Global central banks seem to follow the suit. After BoE increased benchmark policy rate to 0.5%, ECB decided to open the door for interest rate hikes this year.
• UK benchmark government bond yield keep on rising. Its 10-year benchmark rate rose 8 bps to 1.49%.
• Meanwhile Germany and Japan government bond yield also jumped to more than 3 years high.
• Despite the jump in UST yield, equity market inched higher. DJI and Nasdaq Composite increased 0.97% and 1% respectively. S&P 500 was up 0.68%.
Domestic Market Update
• The 10-year Indo GB yield increased 1 bps to 6.49% on Tuesday (02/08/22) in line with our daily forecast range of 6.40-6.50%.
• Recent increase in government bond yield was attributable to rising UST yield, IDR depreciation and rising risk premium.
• The IDR value depreciated against USD and was closed at IDR 14,399/USD yesterday (vs IDR14,397/USD in the previous day).
• Meanwhile risk premium as 5 year CDS closed at 95.57 bps. Indo 5 year CDS was up more than 10 bps only in a week.
• Bank Indonesia (BI) reported Indonesia FX reserves decreased by USD3.6bn to USD141.3bn in Jan-22.
• The decrease was attributable to : 1) government external debt payment and 2) lower bank's foreign currency placement in BI.
• Albeit declining, FX reserves position remain adequate to support the external sector resilience and maintain macroeconomic and financial system stability.
• Government successfully raised funding IDR11tn through sharia security auction yesterday.
• Total incoming bids value reached IDR29.39tn, lower than in previous auction of IDR38.2tn.
• It seem that investors were wait and see during the recent rise in global government bond yield.
• As we have expected demand for shorter maturity was robust as reflected by incoming bids on SPNS09082022 hit IDR14.48tn.
Market Projection
• Given the increase in UST yield and risk premium as well as IDR depreciation we see that yields on domestic currency denominated bond would likely to rise with 10-year Indo GB yield is expected to move within range of 6.45-6.55% today.
• Attractive Indo GB series to be traded today: FR0070, FR0077, FR0086, FR0071, FR0078
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