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Company Update

25 November 2021

Fixed Income Report - November 25, 2021

Global Market Update

• The 10-year U.S. treasury yield edged down 3 bps to 1.64% on Wednesday (11/24/21). U.S. treasury yields varied along the curve.
• U.S. stocks market closed mixed last night with DJI slipped 0.03%. Meanwhile, S&P 500 climbed up 0.23% and Nasdaq Composite boosted 0.43%.
• U.S. GDP expanded 2.1% QoQ in 3Q21, lower than consensus estimate of 2.2% QoQ and previous quarter of 6.7% QoQ.
• U.S. core PCE expanded 0.4% MoM/4.1% YoY in Oct-21, in line with the market estimate. This pace is considered the highest since Jan-91 and was mainly attributable to the soaring in energy costs.
• U.S. initial jobless claims fell to a seasonally adjusted level of 199,000 for the week ending November 20th, from 270,000 throughout the previous week. The Department of Labour noted this as the lowest rate in more than 50 years due to a high labour demand and stronger economic recovery.
• Facing the continuous rise in its inflation rate and improvement in employment rate, many expected The Fed to speed up the taper process by a couple of months and is likely to raise benchmark policy rate more aggressively in 2022.
• Germany’s IFO business climate index decreased to 96.5 in Nov-21, from a level of 97.7 during the previous month. This primarily weighed down by the surging Covid-19 cases across the Europe on top of supply chain disruptions.
• Due to rising Covid-19 cases, Germany is now considering to implement tighter public activity restriction and even planning to impose a nationwide lockdown.
• Meanwhile from Japan, both of its manufacturing and services PMI index appreciated to 54.2 and 52.1 respectively in Nov-21, as shown in the preliminary reading. Markit Economics indicated a rapid growth of vaccination rates and lifting in Covid-19 restrictions as major factors behind.

Domestic Market Update
• The 10-year Indo GB remained unchanged at 6.04% on Wednesday (11/24/21), still in line with our forecast range of 6.00-6.10%.
• There is no changes recorded in the value of IDR against USD yesterday, sustained at IDR14,258/USD. While 5-year Indo CDS showed an increase up to 80.30 bps.
• After cutting 150 bps in benchmark policy rate for 6x since 2020, BI will continue its accommodative policy mainly through 1) low interest rates policy; 2) IDR stabilization and 3) liquidity injection.
• Monetary tightening is likely when central bank sees inflation start to pick up according to Bank Indonesia on Annual Meeting yesterday (11/24/21).
• Inflation is likely to pick up in 2022 on the back of : 1) rising oil price along with improvement in mobility and economic activity as well as 2) rising VAT by 1pp to 11% started in Apr-22.
• Given the potential rise in domestic inflation and more aggressive monetary policy normalization by the Fed in 2022, we see BI has room to raise its benchmark policy rate by 50 bps next year that also may push up government bond yields.

Market Projection
• Despite the downfall in the 10-year U.S. treasury yield, we predict that 10-year Indo GB to remain within the range of 6.00-6.10% today.
• Attractive Indo GB series to be traded today: FR0086, FR0090, FR0071, FR0078, FR0087, FR0091, FR0068, FR088, FR0083 and FR0092.

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