13 Juli 2023
Fixed Income Report July 13, 2023
Global Market Updates
• Wall street garnered more push Wednesday (Jul 12, 2023) following a better-than-expected, two-year low CPI reading, hoisting the S&P 500 to a new high since Apr-22 by +0.74%, the tech-heavy Nasdaq by +1.15% and DJI by +0.25%.
• As the market discerns the new finding, stocks volatility tamed, indicated by a -8.8% fall in VIX.
• The tumble in dollar strength across to a one-year low will provide relief for central banks around the world as inflationary pressures are set to subside and that means further monetary tightening to be off the table.
• The US long-term 10-year treasury yield slipped another -0.6 bps, while the more imminent policy-sensitive 2-year Treasury yield slumped 13 bps, widening the 2-10 year yield spread to -0.87 bps.
• While markets remain convinced that July’s hike is inevitable at this juncture (94.2% probability vs previous day’s 91.8%), likelihood of further rate hikes beyond the summer gap is starting to waiver.
• Expectations of faltering China trade performance reading for June will reiterate the urgency for more policy support; exports are likely to fall (-15.3%) due to weak external demand and high-base-effect, while sluggish imports (-4.6%) reflect struggling domestic demand.
Domestic Market Updates
• Indonesia’s benchmark series of LCY government bond mostly appreciated yesterday (Jul 12, 2023). The 10-year LCY government bond’s (FR0096) yield fell by -2.5 bps.
• The spread between 2-year and 10-year government bond slightly widened, now standing at 0.24% (vs previous day’s/week’s 0.21%/0.34%).
• IDR appreciated against the USD yesterday, and closed stronger against other major currencies. The USD/IDR rate further declined by -0.41% to IDR15,078.
• As the Fed’s terminal rate looks more apparent now, more foreign liquidity is getting redirected from the Gov’t bonds asset class in tandem with increasing equity foreign inflow, as the Ministry of Finance (MoF) recorded a –IDR2.6tn foreign outflow as of Jul 11, 2023.
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 : FR0070, FR0081, FR0082, FR0086, FR0087, FR0096.
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