01 November 2023
Fixed Income Report November 1, 2023
Global Market Updates
• Wall Street Equity Indexes continued its rally Tuesday (Oct 31, 2023); the DJI closed up 0.38%, S&P up by 0.65% and Nasdaq gained 0.48%, propped up by asymmetrically upbeat 3Q earnings results.
• This was despite bearish economic data readings of a Oct-23 consumer confidence index decline to 102.6 from Sep-23’s 104.3, the strong 3Q employment cost index of 1.1% vs the expected 1.0% and an unexpected slip of the Oct-23 Chicago PMI to 44.0 vs the expected 45.0.
• The US Treasury market saw some relief from a dovish-bearing Eurozone Oct-23 CPI/Core CPI readings at 2.9%/4.2%, lower than the expected CPI of 3.1% while core CPI was right on track with the consensus. The 10-yr yields remained flat at 4.88%, while the 2-yr yield crept up 4 bps to 5.07%.
• The BoJ’s verdict on their interest rate policy came out in-line with market’s expectation, keeping their policy rate at -0.1% for now, but has tweaked their yield curve control and set 1.0% as the “reference” rate. The outcome has hoisted the JGB 10-yr by more than 5.5 bps to 0.95% and can be expected to said reference rate.
• This poses the Japanese fund repatriation risks for UST, undercutting demand amid an increase in issuance supplies that will come at USD776bn for the 4Q period.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds further strengthened Tuesday (Oct 31, 2023), with the 10-yr benchmark series yield edging down 2 bps to 7.09%.
• IDR edged a gain against the USD (USD/IDR slid -0.03% to 15,885); DXY’s momentum has been put to a halt as this week’s FOMC meeting is expected to produce a rate hold.
• Yesterday’s primary market auction of gov’t securities (SUN) showed solid demand for Indonesian sovereign debt, securing a total bid of IDR35.9tn, more than doubled from last auction’s IDR17.0tn, and an awarded amount of IDR19.3tn compared to the previous IDR10.2tn.
• The new 5-yr benchmark candidate (FR0101) received warm-welcome from investors and was the most bidded series with a total bids ofIDR12.9tn and a bid-to-cover of 1.24. The SDG series (FRSDG001) also received considerable a amount of bid of IDR2.7tn and a bid-to-cover of 1.63.
• The newly-founded appetite for the bond securities from new issuances might support BI’s monetary operations in maintaining domestic yields, however we continue to see IDR risk to persevere from China’s laggard recovery, declining coal prices, and flatlining CPO prices.
Market Forecast
• Given the recent developments that unfolded within the global and domestic markets, we expect the 10-yr Indo GB yield to move within the range of 7.05-7.15% for today.
• Attractive Indo GB series to be traded today : FR0040, FR0059, FR0081, FR0096, FR0100.
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