21 Agustus 2023
Fixed Income Report August 21, 2023
Global Market Updates
• Wall Street indexes closed in the mix Friday (Aug 18, 2023) as the Treasury yields’ upsurge took a pause and settled lower, followed by a correction in DXY’s trajectory.
• The 10-year US Treasury yield retreated from reaching its 2007 highs, down almost 4 bps to 4.26%, while the 2-year UST declined by 2 bps to 4.92%,. Global bonds followed suit: 10-year German bunds fell -8.7 bps to 2.6%, 10-year UK gilt fell 7.1 bps to 4.7% and Japanese GB fell 1.1 bps to 0.64%.
• Thus far market participants are pricing in a 10% likelihood of a 25 bps rate hike in Sep-23 and a higher 36% probability for a hike to take place in Nov-23 FOMC meeting.
• The most recent Fed’s minutes release mentioned that QT was to still be on the table even during rate cut cycles, meaning that downside pressures for the bond market shall linger.
• China, as expected by market watchers have introduced another 1-year LPR cut though only at 10 bps and without adjustments to the 5-year rate. This lack of stimulation size might find it hard to provide an effective helping hand for their equities as well as their CNY.
Domestic Market Updates
• Indonesia’s benchmark series of LCY government mainly closed lower Friday (Aug 18, 2023). The 10-year (FR0096) yield have gained another c. 7 bps to reach 6.49% as of last close.
• The IDR regained was little changed against the USD (USD/IDR muted by +0.01%), but we might see IDR to rebound today as DXY weakened following UST yields retreat.
• Till Aug 16, 2023, on an WoW basis the Indonesian government securities booked a net outflow of IDR25.74tn with as the global bonds yields escalation was at its peak.
• Foreign positions saw a net outflow of IDR1.61tn, followed by domestic pension and insurance funds’ outflow of IDR9.87tn, banks of IDR2.6tn and Bank Indonesia IDR12.06tn.
• Given the 10-year yields to have far exceeded the JIBOR-1M, we might see some inflow from banks, as well as other funds to return back to bonds and ease the yields back down.
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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