10 Agustus 2023
Fixed Income Report August 10, 2023
Global Market Updates
• Investor’s wait-and-see stance carried on to Wednesday’s (Aug 9, 2023) equities sell-off led by the tech sector (Nasdaq composite down -1.17%), followed by DJI (-0.54%) and S&P 500 (-0.70%), as they await Thursday’s monthly inflation readings that might shed some color on the Fed’s next move.
• Market consensus prices in a rather conservative forecast for the inflation rate (to remain 0.2% MoM but uptick 3.3% YoY) and core inflation rate (to remain 0.2% MoM and remain 4.8% YoY), whilst expecting the US labor market to start loosening (Initial Jobless Claims expected to reach 230k).
• Long-dated Treasury yields continued its retreat as investors exhibited solid demand for the 10-year papers: 10-year UST auction of USD38bn yesterday was awarded at 3.99%. The interest rate-sensitive 2-year UST, on the other hand, rose almost 5 bps, putting the 2s10s UST curve at -79 bps.
• Thursday’s 30-year UST auction, the last auction of the week, might turn out the same way as its preceding auctions, but it all ultimately depends on investors’ perception of near and long term risk, which has been shown to be a bigger deciding factor for yield movements compared to supply.
Domestic Market Updates
• Indonesia’s benchmark series of LCY government closed mixed Wednesday (Aug 9, 2023), where the 10-year (FR0096) yield continued to trend lower 6.31%, leaving the 2s10s Indo GB curve at 32 bps.
• The IDR regained strength against the USD (USD/IDR down by -0.18%).
• As of Aug 8, 2023, Indonesian government securities saw a daily total net outflow of IDR1.6tn, with daily/weekly foreign net outflows reaching -IDR1.4tn/-IDR690bn, which was expected due to the culmination of historically low 10-yr UST and Indo GB spread (207 bps in Aug 3), BoJ’s YCC concerns and the recent, still evidently solid appetite for the UST auctions post Fitch’s derating of US credit.
• That shock effect, in our view, should not linger and inflow should be able to return as Indonesia’s estimate-beating 2Q23 GDP shows dormant economic strength, coupled with the 10-year UST returning back to below 4% levels.
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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