28 Agustus 2023
Fixed Income Report August 28, 2023
Global Market Updates
• Fed’s address in Jackson Hole symposium offered a vague picture of what their next step would be, aside from one certainty: they’re firmly committed to suppress inflation down to their 2% target.
• This lack of clarity gave equities some room for breath Friday (Aug 25, 2023) with the S&P 500, DJI and Nasdaq posting small gains (0.7%, 0.7% and 0.9%, respectively).
• US Treasuries jumped Friday, with the 10-year UST yield rising by c. 2 bps to 4.25%, followed by 2-year UST yield’s rise by c. 5 bps to 5.03%.
• Rates are could to stabilize here on out, but the possibilities of rate cutting to occur this year remain slim to none. Trends in recent economic and geopolitical landscapes strongly points towards the case of a higher rates to linger.
• US yields may continue to rise given several backdrops: 1) US debt surpassing USD32.7tn, translating into over USD1.75tn in annual interest payments (on 5.375% FFR), 2) China’s position as the leading purchaser of US bonds with plans of fund repatriations and reunification with Taiwan, 3) Emboldened dedollarisation play by BRICS to further weaken US bonds demand and derail USD value.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds was mixed Friday. The 10-year Indonesian government bond benchmark series (FR0096) yields fell by -2.3 bps to 6.50%.
• The Indonesian gov’t 2s10s bond curve further flattened to 19 bps (vs 29 bps previously), shown by the selloffs in shorter-termed bonds and accruals in the longer termed bonds (especially insurance and pension funds which has been shown to accrue c. IDR6.9tn WoW as of Aug 23, 2023.
• This might indicate increased risk perception (reflected by a rebound in 5-yr CDS to 87.6 from its lowest of 73.3 in Jul-23), and economic uncertainty amid faltering trade performance predominantly from China’s steady fallout.
• The IDR depreciated against the USD (USD/IDR rebounded by 0.33%), following the rebound in UST yields amid higher rates concerns.
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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