25 Agustus 2023
Fixed Income Report August 25, 2023
Global Market Updates
• Hawkish anticipations subdued stocks: Wall Street saw equities sell-offs Thursday (Aug 24, 2023) as investors deferred any action taking ahead of Fed’s Powell statement in the upcoming Jackson Hole symposium considering the nuanced economic developments.
• US Treasuries were mostly muted Thursday. The 10-year UST yield crept up c. 3 bps to 4.23%, followed by the more Fed-sensitive 2-year UST yields rise by c. 3 bps to 4.98%.
• Global bonds mostly appreciated: 10-year German bunds yield slipped 0.4 bps to 2.51%, 10-year UK gilt fell 4.2 bps to 4.43% while the Japanese GB remained muted at 0.66%.
• What to expect from the upcoming Jackson Hole Symposium: the higher-for-longer scenario is most likely to realize, with market participants pricing in a rate hold in 19-20 Sep 2023 FOMC meeting and a 33% chance of a hike to happen in Nov-23’s meeting.
• An increase in the Atlanta Fed’s GDPNow model made the case for a more hawkish policy direction as the latest 3Q GDP projection shows 5.9% YoY growth (vs 5.8% previously).
• Saudi Arabia, Iran, Egypt, Argentina, Ethiopia and the UAE have been invited to join forces with BRICS in their Johannesburg summit. The expanded BRICS-11 harbor the potential to eclipse the global economy by accounting for 45% by 2040, from 32% last year.
• India is set to become the primary growth engine for BRICS, with China’s growth sputtering and peaking to only face 2-3% average growth up to 2040, as they are projected to see 6 – 8% average annual growth up to 2040.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds was mixed Thursday. We saw a flattening of the yield curve (2s10s curve now at 29 bps vs 49 bps yesterday), as we saw the benchmark 2-year yield rising 4.4 bps to 6.21% while the 10-year benchmark yield fell by c. 12 bps to 6.50%.
• The IDR further strengthened against the USD (USD/IDR went down -0.33%) supported by DXY’s slip from UST 10-year’s retreat.
• Bank Indonesia held their 7DRR at 5.75% as expected, reiterating their focus of stabilizing the IDR through monetary operations other than adjusting policy rates.
• As of Aug 23, the Indonesian gov’t bonds market posted a net inflow of IDR2.15tn, accrued mainly from purchases by domestic funds an retail, as well as BI monetary operations.
• Foreign funds continue to post net ouflows, amounting to IDR4.94tn DtD and IDR7.53tn WoW.
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 6.50-6.60% for today.
• Attractive Indo GB series to be traded today : FR0070, FR0082, FR0087, FR0096.
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