Global Market Update
• The 10-year U.S. treasury yield weakened 1.64% on Monday (25/10/21). U.S. treasury yields fell by 1-3 bps along the curve.
• Yields on U.S. treasury note dropped following treasury secretary Janet Yellen statement that high inflation would be temporary and is expected to fall back to 2% level in the middle of 2H22.
• U.S. stock market closed gain last night. DJI, S&P 500 and Nasdaq Composite edged up 0.19%, 0.48% and 0.90% respectively.
• The Chicago Fed National Activity Index dropped to -0.13 in Sep-21 from 0.05 in Aug21, primarily dragged down by the decline in industrial production.
• The Federal Reserve Bank of Dallas' general business activity index for manufacturing in Texas rose by 10 points to 14.6 in Oct-21, up from the previous month's of 4.6.
• The Ifo Business Climate Index for Germany fell to 97.7 this month, 0.2 below the consensus. This drop was attributable to continuous supply bottleneck and predicted to remain for the upcoming months.
• Developed market bond yields have risen in recent weeks causing the yield curve to steepen driven by the likelihood of rate hikes from BoE and the Fed next year.
Domestic Market Update
• The 10-year Indo GB yield continued to lower. As of Monday (10/26/21), the benchmark government bond yield closed 1 bps lower to 6.04%, below our forecast of 6.05%-6.15% range.
• The value of rupiah depreciated against USD to IDR 14,158/USD yesterday. Meanwhile 5-year Indo CDS remained stable below 83 bps.
• As of Oct 25, government successfully achieved the target of raising IDR15tn by issuing ORI020. The lower target from previous issuance of IDR27tn was driven by 1) lower financing needs ; 2) improving government revenue and 3) optimization of state spending and non-debt financing.
• On the macro side, Bank Indonesia (BI) reported Indonesia's money supply (M2) grew 8% YoY to IDR7,287tn in Sep-21, higher than previous month growth of 6.9% YoY.
• The increase in M2 was driven by M1 and quasy money that recorded a growth of 11.2% YoY and 4.5% YoY respectively.
• Factor affecting the growth of M2 was credit disbursement that grew 2% YoY. We expect with improving consumer sentiment, higher public mobility, the ample liquidity in the economy would be translated into higher economic output and gradual increase in inflation.
Market Projection
• Government will conduct debt securities auction today with indicative target set at IDR8tn. We believe government to successfully issued 7 series of debt securities on the back of lower target amid demand from investor that remain high. We projected that yields in primary market to remain below in the secondary market.
• We expect the 10 year Indo GB yield to continue its consolidation but we trim down our daily forecast range 6.00% - 6.10%.
• Attractive Indo GB series to be traded today : FR0086, FR0090, FR0064, FR0082, FR0087, FR0091, FR0068, FR0057, FR0062 and FR0092.
Disclaimer
