12 Juli 2023
Fixed Income Report July 12, 2023
Global Market Updates
• Wall street closed Tuesday (Jul 11, 2023) on a higher note: DJI hiked +0.93%, S&P 500 up +0.67% and Nasdaq +0.55 higher as market participants anticipate an optimistic inflation reading Wednesday.
• The cooling-down of inflation (cons: 3.1% YoY vs May 4% YoY) is unlikely going to budge the Fed’s hawkish agenda this month, on the back of several findings: 1) prevailing tight labour market – unemployment sits at lows seen since the 1960s, and 2) the imminent rebound in crude oil as the +OPEC curbs entail lagging US production to demand.
• The US long-term 10-year treasury yield continued its decline by -2.4 bps, while the shorter-termed 2-year Treasury yield remained flat, widening the 2-10 year yield spread to -0.90 bps.
• July’s rate hike likelihood is now discounted at 91.8% (vs 94.2% the previous day), as market perceives the Fed’s rigid commitment to curbing inflation.
• Yesterday’s reading of Chinese credit data showed PBoC’s rate cut effects are beginning to kick in, Jun-23 aggregate social financing hiked to CNY4.2tn (vs CNY1.5tn in May-23), and is poised to steadily get better through 2H23, though more policy intervention is still much needed.
Domestic Market Updates
• Indonesia’s benchmark series of LCY government bond took an upturn yesterday (Jul 11, 2023), following US Treasuries’ rebound. All Indonesia’s benchmark yields moved lower, with the 10-year LCY government bond’s (FR0096) yield withdrawing -3.5 bps.
• The spread between 2-year and 10-year government bond continued to narrow, now standing at 0.21% (vs previous day’s/week’s 0.24%/0.36%), as investors attempt to gauge the domestic policy rate movement amid hawkish Fed.
• IDR appreciated against the USD yesterday, and closed mixed against other major currencies. The USD/IDR rate declined by -0.36% to IDR15,140.
• Yesterday’s government securities (SBN) auction saw a total bids of IDR47.8tn, higher than the previous auction’s IDR37.6tn, with the winning bids amounting to IDR13tn. Most bids went into FR0096 with a bid-to-cover of 5.6x.
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 6.10-6.30% for today.
• Attractive Indo GB series to be traded today : FR0077, FR0081, FR0082, FR0086, FR0087, FR0096.
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