03 Agustus 2023
Fixed Income Report August 03, 2023
Global Market Updates
• The US credit rating downgrade sent shockwaves across the bonds and equities market, which followed a jolt in the 10-year US Treasury note by up to 4.08%, a level not seen since Nov-22, as massive selloffs played out in the longer-termed notes and bonds. On the other hand, the short-term 2-year notes rallied to 4.88%, aggressively steepening the yield curve to -80 bps which, from an inverted position, usually translates to bearish equities.
• In line with that theory, US equity indexes got dragged down as investors took on their risk-off stances. DJI fell -0.98%, the S&P 500 slipped -1.38% and Nasdaq plummeted by -2.17%.
• In addition, the market was faced with two main surprises yesterday: 1) the higher-than-expected quarterly issuance planned for next week (USD103bn vs USD96bn previously), and 2) the hotter-than-expected US labor market (July ADP employment change rose +324k vs estimates of only +190k).
• These surprises sent Wall Street’s notorious fear indicator, the VIX, to rocket by +15.5%.
• Elsewhere, the Bank of England is expected to hoist its rates by 25 bps to 5.25% in today’s Monetary Policy Committee meeting, a record high since the 2008 GFC.
Domestic Market Updates
• Indonesia’s benchmark series of LCY government bonds moved downwards Wednesday (Aug 02, 2023), where the 10-year (FR0096) yield rose to 6.24%, putting the spread between UST 10-year and Indo GB 10-year to 224.8 bps.
• IDR continued to weaken against the USD. However, we expect the USD’ strength to wither following the credit downgrade.
• Indonesia Deposit Insurance Corporation (IDIC) reported a growth of +5.3% YoY in the third funding fund for Jun-23, mainly driven by the increasing trend of interest rates. We expect the interest rates to remain high until the end of 2024, which could potentially restrict yields from moving lower.
• The increasing trend in corporate bond credit spreads and global 10-year bond yields, as well as the decrease in global stock indices, indicate that investors are concerned about the current economic situation.
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 6.25-6.30% for today.
• Attractive Indo GB series to be traded today : FR0059, FR0081, FR0082, FR0087, FR0096.
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