Global Market Update
• The 10-year UST yield stayed at 1.74% on Wednesday (01/12/22). Yields change was mixed along the curve. • US government bond market started to normalize as market already priced in inflation figure and Fed’s monetary policy guidance.
• US CPI rose 7% YoY hitting the highest pace since 1982 in Dec-21, in line with expectation.
• On the previous day, 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 continued to strengthen last night. DJI and S&P rose 0.11% and 0.28% respectively. Meanwhile Nasdaq Composite was up 0.23%.
• On the data front, China inflation rate also came below market expectation at 1.5% YoY in Dec-21 (vs 1.8% YoY consensus forecast).
Domestic Market Update
• The 10-year Indo GB yield slipped 3 bps and was closed at 6.39% on Wednesday (01/12/22) slightly below our daily forecast range of 6.40-6.50%.
• The IDR value slightly weakened and closed at IDR14,318/USD (vs IDR14,303/USD on Tuesday).
• Meanwhile 5-year Indo CDS slid to 75.72 bps at the same time (vs 78.30 bps in the previous trading day). • Domestic government bond market recorded an outflows as foreign investors holdings in tradable government bond decreased by IDR3.34tn from Dec 31 to Jan 11.
• We think the decline in foreign ownership of government bond was inline with heightened external pressures as UST yield rose from 1.51% last year to >1.70% in the first week of Jan-22.
• Along with the outflows and UST trend, the 10-year Indo GB yield rose from 6.35% to 6.45%.
Market Projection
• Given the recent development, we expect the 10-year Indo GB yield to move within range of 6.35-6.45% today.
• Attractive Indo GB series to be traded today: FR0090, FR0091, FR0068, FR0080, FR0072.
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