16 Agustus 2023
Fixed Income Report August 16, 2023
Global Market Updates
• Wall Street indexes continued its retreat Tuesday (Aug 15, 2023), mainly spurred by hawkish and/or higher-for-longer narrative being priced in.
• In tandem with that US Treasuries as well as global bond yields posted more increases, UST 10-year edged up 2 bps whilst the 2-year fell 4 bps, german 10-year bunds gained 3.5 bps and UK’s 10-year gilt rose 2.3 bps.
• Debates regarding the Fed’s next move have shift in frame towards how long rather than how much higher, since recent data releases by large indicates that inflation is moving in the Fed’s favor.
• Reflected from the future markets, investors have priced in a rate hold in Sep-23 FOMC meeting, and still see a 1/3 chance of a 25 bps hike in Nov-23.
• China’s central bank decision on cutting their 1-year MLF policy rate by 15 bps yesterday caught the market by surprise since it was quicker and bigger than expected (consesnsus expected a hold in Aug-23 and a 10bps cut in Sep-23).
• Notwithstanding, China’s economy might need more push than that to stimulate a proper turnaround as their new loans decline beat the 2009 GFC-lows.
• The rate cut suppressed China’s gov’t bond yields, with a risk of 2s10s curve inversion as the longer-termed bonds overperforms, reflecting investors brace towards an anticipated hard-landing.
Domestic Market Updates
• Indonesia’s benchmark series of LCY government further contracted Tuesday (Aug 15, 2023), amid angst of China’s (as Indonesia largest economic partner) economic turmoil becoming more grave than expected. The 10-year (FR0096) yield soared by c. 6 bps to 6.37%.
• The IDR continued its depreciation against the USD yesterday amid balance of trade shrinking.
• The sovereign sharia securities auction held yesterday recorded a total incoming bid of IDR20.2tn, or fell from previous auction’s IDR22tn.
• The average yields of the sharia securities was higher than the last auction, showing investors’ declining willingness to invest in these instruments, meanwhile the longer-termed PBS033 yield declined.
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 6.35-6.45% for today.
• Attractive Indo GB series to be traded today : FR0070, FR0077, FR0082, FR0087, FR0096.
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