Global Market Updates
• Wall Street indexes continued its bear run starting the week (Aug 21, 2023) amid yield hikes as the US Treasury resumed its sell-offs.
• The 10-year US Treasury yields have reached its 15-year high, jumping by c. 1.2 bps to 4.35%, followed by the 2-year UST’s c. 5 bps hike to 4.97%. Global bonds followed suit: 10 year German bunds rebounded 9 bps to 2.7%, 10-year UK gilt rose 5 bps to 4.72% and Japanese GB increased by 1.1 bps to 0.66%.
• The soft-landing narrative continues to be echoed given supporting data. The labor market has substantially cooled, with the vacancies-to-unemployed-persons ratio moderating to 1.6 from a hot 2.0, though without tempering the unemployment rate (remained 3.5% vs previous year).
• Moreover, the PCE price index have dropped from its 7% peak in Jun-22 to 3% in Jun-23 without having incurred notable damages to the economy; in fact the economy remains strong.
• Labor-market specialists still insist that vacancy-to-unemployed ratio should soften to 1.2, a level that would seem fit with low and stable inflation, like the Fed’s 2% target, which would call for a higher-for- longer scenario indeed.
Domestic Market Updates
• Yesterday’s INDO GB movements surpassed our expectations, as the benchmark series of LCY government bonds soared unanimously, with the 10-year benchmark series (FR0096) yield jumping by almost 11 bps and reached 6.60%.
• We hold the view that domestic bonds could depreciate further under the perceived continuing US Treasury pressures, but at the same time the rising yields should provide enough allure for bond inflows as the real yield in Indonesia is competitive within the EM landscape.
• The IDR further depreciated against the USD (USD/IDR rose +0.26%) spurred by strengthening in DXY as USTs resumed their sell-offs.
• Till Aug 18, 2023, on a weekly basis the Indonesian government securities booked a net outflow of IDR23.59tn with foreign outflows accruing up to IDR2.3tn, followed with outflows from domestic banks (IDR14tn) and insurance and pension funds (IDR6.7tn).
• On a daily basis (Aug 18), Bank Indonesia was seen to intervene and booked a net buy of IDR10.46tn, and at the same time inflows have started to reign in from mutual, insurance and pension funds (IDR3.4tn).
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 6.55-6.65% for today.
• Attractive Indo GB series to be traded today : FR0070, FR0077, FR0082, FR0087, FR0096.
MNCS Research
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