04 Juli 2023
Fixed Income Report July 4, 2023
Global Market Updates
• Ahead of the July 4th US Independence Day, Wall Street equities managed to scrape off marginal gains while concurrently faced with weakening manufacturing activity data that reached three-year lows.
• The highlight yesterday came in the form of a record breaking US treasury yield curve between the 2-year notes and the longer-termed 10-year notes that touched 111 basis points, of which, if history is any reliable source of lesson, points towards an incoming recession.
• Upon market closing, the 10-year long-term Treasury yields stood at 3.86%, while the yield for 2-year short-term notes shot up by 7 bps to 4.94%.
• The CME Fedwatch consensus has yet recorded another gain in market participants’ conviction (86.8% now vs 84.9% the previous day) that the 25 bps rate hike will indeed take place in July despite the Fed’s inflation rate gauge having signalled a clear cooldown taking place.
• The market will continue to highlight CNY’s and JPY’s performance this week which has undergone a spree in decline over the recent months, while the AUD is poised for an uplift ahead of the RBA interest rate decision which consensus believes to be in the form of a 25 bps rate hike.
Domestic Market Updates
• Unanimous apprectiation in all benchmark series of LCY government bonds was observed on Monday (Jul 3, 2023). Indonesia’s benchmark 10-year LCY government bond yield FR0096 edged down 2 bps to 6.22% as did the other benchmark series.
• IDR was closed mixed against other major currencies, but managed to appreciate against the USD as the USD/IDR slid -0.15% last week.
• Corresponding the US bond market, Indonesia’s yield curve spread between the benchmark 2-year (FR0081) and 10-year (FR0096) government bond yields continued to narrow, having stood at 0.39% yesterday, slipping 8 bps from last week.
• This indicates investors’ anticipation for no more rate hikes from Bank of Indonesia as yesterdays inflation rate data showed that current monetary measures was on-track.
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, FR0077, FR0084, FR0087.
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