Global Market Update
• Yield on shorter and longer term UST note remains inverted. The benchmark 10-year UST note yield was up by +1bps to 3.03% on Wednesday (07/20/22).
• Meanwhile, yield on 2-year UST slightly fell -1 bps to 3.23% yesterday.
• Spread between 2-year and 10-year now stood at -20 bps as investors anticipate another 75-100 bps FFR hikes.
• Most of US stock indices recorded an appreciation. DJIA strengthened by
+0.15%; S&P 500 was up +0.59% and the Nasdaq Composite gained +1.58%.
• The driving catalyst was from the release of the company's financial statements in 2Q22 that performed well and exceeded estimates.
Domestic Market Update
• The benchmark 10-year Indo GB yield (FR0091) rose 1 bps to 7.45% on Wednesday (07/20/22).
•The IDR weakened to IDR14,990/USD yesterday compared to IDR14,977/USD in the previous day.
• Indonesia’s risk premium 5-year CDS fell to 145.71 from 155.74 bps yesterday.
• The bloomberg survey shows the majority of economists (22/61%) expect BI to hold the 7-day reverse repo rate at 3.5% in the July-22 RDG.
• We view BI raising the benchmark interest rate by 25 bps to 3.75% as a pre-emptive measure to anchor inflation in line with: 1) oil price of USD100/bbl; 2) IDR weakening trend; 3) strengthening consumption & accelerating credit growth; 4) potential pass-on increase in input costs as well as 5) the increase in inflation expectations.
Market Projection
• Given the recent development on global and domestic market, we expect the 10 year Indo GB yield to move within a range of 7.30-7.50% for today.
• Attractive Indo GB series to be traded today : FR0063, FR0070, FR0077, FR0056, FR0078, FR0052, FR0073, FR0091.
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