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12 Januari 2022

Fixed Income Report - January 12, 2022

Global Market Update

• The 10-year UST yield fell 2 bps to 1.74% on Tuesday (01/11/22). UST yields declined after Fed’s Chair Powell gave his testimony to US Senate.
• Powell said that inflationary pressures to last well into the middle of 2022 before it starts to normalize.
• Furthermore, Powell also said that he expects the Fed to raise interest rates and end asset purchases this year while a balance-sheet contraction could perhaps start later in 2022.
• The Fed also prepare for raising rates more if needed to fight against high and more persistent inflation that previously thought.
• FOMC’s participants see 3x FFR hikes are likely in 2022. This depicted more aggressive US central bank as at Sep-21 projection the Fed was expected to increase benchmark policy rate only 1x.
• Some US banks even foresee 4x hikes this year. Fed’s first tightening cycle is expected to start as soon as Mar-22 with 77% probability of 25-50 bps target range.
• US equity market was up last night. DJI and S&P rose 0.51% and 0.92% respectively. Meanwhile Nasdaq Composite lead the gain after rising 1.41%. Domestic

Market Update
• The 10-year Indo GB yield slipped 3 bps at 6.42% on Tuesday (01/11/22) in line with our daily forecast range of 6.40-6.50%.
• The decline in 10-year Indo GB yield was align with IDR appreciation against USD and lowering risk premium.
• IDR slightly appreciated to IDR14,303/USD yesterday (vs IDR14,308/USD on Monday).
• Meanwhile 5-year Indo CDS slid to 78.55 bps at the same time (vs 79.86 bps in the previous trading day).
• Government successfully raised IDR11tn through Sukuk Auction on Tuesday (01/11/22). Robust investors demand reflected from total incoming bids reaching IDR55.35tn.
• We see robust investor demand on SPNS12072022 (new issuance/<1 year maturity) with the bids value of IDR21.36tn implying bid-to-cover-ratio of 21.36x.
• We understand that during rising interest rate risk, fixed income investors gravitate towards shorter maturity bond (shortening the duration).
• On the data front BI reported Indonesia retail sales grew 2.8% MoM/10.8% YoY in Nov-21 and expect Dec-21 retail sales to increase 3.0% MoM/8.9% YoY on the back of end-year holiday season.

Market Projection
• Given the recent development, we expect the 10-year Indo GB yield to fall and move within range of 6.40-6.50% today.
• Attractive Indo GB series to be traded today: FR0044, FR0071, FR0068, FR0072.

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