Global Market Update
• The UST bond yields increased following the Fed’s chair Powell speech on future interest rate policy.
• Yields for US government bond rose 4-11 bps along the curve. Yield on 2- year UST note increased 10 bps to more than 1.1%.
• Meanwhile the 10-year UST bond yield increased 7 bps to 1.84% on Wednesday (01/26/22).
• The Fed kept interest rate Federal Funds Rate (FFR) unchanged in Jan-22 meeting.
• However the Fed officials have signaled that FFR could be soon hiked as soon as Mar-22.
• Fed’s chair Powell said that inflation risk is more persistent and the trend seems to skew upward bringing pressures for monetary authority to be nimble.
• Even though Powell did not mention anything about the pace of interest rate hike, timing and how many time Fed would increase FFR, he said that Fed also consider to shrink its balance sheet.
• Again, Powell did not mention on the timing and size of the reduction. He only said this agenda would be taken after raising interest rate.
Domestic Market Update
• The 10-year Indo GB yield closed higher at 6.40% on Wednesday (01/26/22) in line with our daily forecast range of 6.35-6.45%.
• The IDR value slightly unchanged against USD and was closed at IDR14,353/USD (vs IDR14,351/USD on Tuesday).
• Risk premium fell with Indonesia’s 5-year CDS stood at 87.15 bps (vs 89.04 bps on Tuesday).
• IMF projects Indonesia’s GDP to expand by 5.6% in FY22F and 6.0% in FY23F supported by favorable global commodity prices.
• We agreed that higher commodity prices can benefit Indonesia’s economy which we believe should be translated into higher consumer purchasing power.
• However the high price of commodities also bringing another consequence of higher inflation. However the inflation outlook for Indonesia remain benign.
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: FR0070, FR0086, FR0090, FR0071, FR0078, FR0052, FR0082.
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