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05 Januari 2022

Fixed Income Report - January 05, 2022

Global Market Update

• U.S. treasury yield climbed 1-6 bps along the curve on Tuesday (01/04/22). The 10-year U.S. treasury note yield nudged up to 1.65%.
• Globally, the local currency denominated government bond yield for 10-year maturity edged up.
• Market sentiment remained on the Fed monetary policy normalization. After a faster pace of tapering process, market participants now expect the first FFR hikes by 25 bps in Mar-22 with the probability of 61.3%.
• Minneapolis Fed’s President Neel Kashkari said he expects the U.S. central bank to need to raise interest rates 2x this year to address persistently high inflation.
• From the equity market, U.S. stock indices closed mixed. DJI rose 0.59% while S&P 500 and Nasdaq Composite dipped 0.06% and 1.33% respectively.
• The ISM Manufacturing PMI in the U.S. fell to 58.7 in Dec-21. The manufacturing index came below market forecast and previous month (60 and 61.1), marking the weakest factory activity since Jan-21.
• The fell in U.S. manufacturing activity was attributable to the slowdown in new orders (60.4 vs 61.5).
• The number of job openings (JOLTs) in the U.S. decreased to 10.56 million in Nov21 from an upwardly revised 11.03 million in the previous month and below market expectations of 11.08 million.
• China’s Caixin Manufacturing PMI rose to 50.9 in Dec-21, above market consensus and previous month of 50.1 and 49.9 respectively.

Domestic Market Update
• The 10-year Indo GB yield rose 1 bps to 6.38% on Tuesday (01/04/22) in line with our daily forecast of 6.30-6.40%.
• The upward pressure on domestic currency benchmark government bond was in line with rupiah depreciation. Rupiah’s value declined to IDR14,303/USD (vs IDR14,266/USD in the previous trading day.
• However, the fall in risk premium has limited the rise in government bond yield. The 5-year Indo CDS dropped 3 bps to 71.45 bps.
• Government successfully issued 6 series of securities and raised funding of IDR25tn in its first auction in 2022.
• The total incoming bids in yesterday’s auction were IDR77.58tn. The newly issued FR0093 came with the highest bid of IDR26.82tn.

Market Projection
• Given the recent development, we expect the 10-year Indo GB yield to increase within range of 6.35-6.45% today.
• Attractive Indo GB series to be traded today: FR0081, FR0084, FR0086, FR0090, FR0071, FR0078.

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