18 Agustus 2023
Fixed Income Report Aug 18, 2023
Global Market Updates
• Wall Street indexes continued its losing spree Thursday (Aug 16, 2023) amid yields’ continued escalations as the selloff in the bond market carried on, still overshadowed by Fed fears and risk-off behaviours in the summer trading.
• The 10-year US Treasury yield was sent 2.4 bps upwards to 4.27%, well poised to reach 2007 levels, while the 2-year UST declined by 3.8 bps, steepening the 2s10s curve to -65 bps.
• We view the UST curve steepening (which has shown to be a bad sign for stocks) to continue onwards given the fact that labor data remains tight (weekly initial unemployment claims fell to 239k vs consensus of 240k) and therefore keeping in store further tightening options from the Fed, lingering pressures from Japan’s YCC policy tweak, increases in treasury supply.
• The PBoC’s abrupt move Tuesday was a little overdue in our view, and will probably do little to revive the shattered consumer confidence, hence we anticipate further rate cuts of 10 bps to follow up in 3Q23 and 4Q23, rendering the MLF rate to likely stand at 2.3% by FY23E with a 50 bps cut in RRR.
• With those assumptions, baseline forecasts point to China’s CPI in 3Q23 to trail at 0.1% and could pick up to 0.6% in 4Q23, or bringing the average growth to 0.5% YoY while having risks skewed to the downside (35% chance of deflationary trend to carry into 1Q24).
Domestic Market Updates
• Indonesia’s benchmark series of LCY government further depreciated Thursday (Aug 16, 2023), aligned with the USTs sell-off trend. The 10-year (FR0096) yield have penetrated through the 6.40% JIBOR-1M floor and now stands at 6.42%.
• The IDR regained some composure against the USD (USD/IDR fell -0.37%), in line with DXY slight correction, but we might see further DXY strengthening that has been raging since mid-July 2023, carried by US yields’ uprising.
• Till Aug 15, 2023, on an MTD basis the Indonesian government securities booked a net outflow of IDR7.94tn with foreign funds seeping out due to uprises in UST and JGB yields.
• In Aug 15 alone, foreign exits of IDR890bn was seen, along with insurance and pension funds (IDR10.7tn) and banks (IDR9.2tn) amid fears of further yield escalation to come.
Market Forecast
• Given the recent developments that unfolded within the global and domestic markets, we expect the 10 year Indo GB yield to move within the range of 6.40-6.50% for today.
• Attractive Indo GB series to be traded today : FR0070, FR0077, FR0082, FR0087, FR0096.
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