20 Juli 2023
Fixed Income Report July 20, 2023
Global Market Updates
• Wall Street closed higher on Wednesday; S&P 500 gained +0.24%, DJI went up +0.31% and Nasdaq managed to tick upwards by +0.03%, as the market observed positive 2Q23 corporate earnings results.
• US stock movements was also supported by the of lower than expected US housing starts report Jun-23 and easing inflation pressures from the UK which fell to 7.9% YoY Jun-23 from 8.7% YoY May-23, exceeding market expectations of 8.2% YoY.
• This sparked a craze for the 10-year UK gilt, plummeting its yield by -11.6 bps to a 6-week low which carried over to US 10-year yields as well. We are now seeing the 10-year treasury note at 3.75%, which means a widened inverted yield spread of -0.99bps the 2-year notes remain unchanged, indicating that recession remains a risk in the foreseeable future.
• CME Fedwatch’s target rate probability for next week remains fixated at 98% for a 25 bps hike (previously 98%).
Domestic Market Updates
• Indonesia’s benchmark series of LCY government stood flat Tuesday (Jul 18, 2023). The 10-year LCY government bond’s (FR0096) yield remain unchanged while the shorter 5-year and 20-year saw some appreciation.
• The spread between the 2-year and 10-year government bond narrowed to 0.21% (vs previous day’s/week’s 0.24%/0.24%).
• IDR closed stronger against the USD and was mixed against other major currencies Tuesday as the newly stipulated policy (Government Regulation No.36/2023) that mandates export earnings to be repatriated in order to inject dollar liquidity into the country’s reserves gave Rupiah some standing.
• Tuesday’s sharia government securities auction saw a total of IDR24.3tn incoming bids, less than the previous IDR34.1tn, with the same winning bids of IDR6tn. Investors sought after the shorter-termed sukuk (PBS036), as it wielded the highest bid-to-cover of 13x.
• We also note a IDR0.7tn accrual in foreign position in bonds as of Jul 17, 2023 (IDR2.1tn MTD).
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 6.15-6.25% for today.
• Attractive Indo GB series to be traded today : FR0064, FR0078, FR0081, FR0082, FR0087, FR0096.
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