Global Market Update
• U.S. treasury yield climbed 2-8 bps along the curve on Wednesday (01/05/22). The 10-year U.S. treasury note yield rose 5 bps to 1.70%.
• Yields on the U.S. treasury note increased after the Fed released its Dec-21 minutes of meeting.
• After a quicker tapering and potentially sooner interest rate hikes, the Fed also plans to shrink its balance sheet.
• The minutes released showed that Fed Officials began plans to start reducing amount of bond holding on its balance sheet.
• U.S. equity market tumbled. DJI dropped 1.07% while S&P 500 and Nasdaq Composite declined 1.94% and 3.34% respectively.
• U.S. labor market strengthened as it showed by ADP payrolls that grew by 807k in Dec-21, above market consensus of 375k.
• Persistently high inflation and strengthening job market have forced the Fed to take more hawkish stance. • In Japan, government bond yield hit to two months high. In response to the increase in long term rates, BoJ offers to pump USD17.22bn into market through temporary government bond purchases between Jan 7-14 to keep the yield low.
Domestic Market Update
• The 10-year Indo GB yield declined to 6.30% on Wednesday (01/05/22) below our daily forecast of 6.35-6.45%.
• The IDR depreciated against USD and closed at IDR14,358/USD yesterday. In the recent week, the IDR continued to declining. Last week the IDR was closed at IDR14,253/USD.
• We think that more aggressive monetary policy normalization by the Fed has triggered IDR to depreciate against USD.
• Foreign investors booked a total net sell of IDR85tn throughout 2021 in government securities market, making foreign ownership in tradable government securities dropped from 25.23% to 19.05%.
• Outflows from government securities started in Sep-21 and continue through Dec21.
• We think that rising global inflation, quicker tapering process as well as the likelihood to raise interest rates aggressively in 2022 have triggered outflows from Indonesia's government securities.
• Despite the massive outflows, government bond yield change was relatively limited and still offer attractive valuation compared to peers.
Market Projection
• Given the recent development, we expect the 10-year Indo GB yield to increase within range of 6.30-6.40% today.
• Attractive Indo GB series to be traded today: FR0081, FR0084, FR0086, FR0090, FR0071, FR0078.
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