02 November 2023
Fixed Income Report November 2, 2023
Global Market Updates
• On the notion that the Fed has no rate hikes left to offer given the latest economic backdrop as was indicated from Powell’s address yesterday (Nov 1, 2023) bonds and equities found a solid footing to spark a rally; DJI up 0.67%, S&P 500 jumped 1.05% and Nasdaq higher 1.64%.
• The other glad tiding came from the Treasury issuance announcement for next week that fell USD2bn short of the expected USD114bn, accompanied by subpar Oct-23 ADP employment of +113k vs +150k, weaker-than-expected Oct-23 ISM manufacturing index of 46.7 vs 49.0, giving bonds enough breathing room.
• The UST 10-yr yield plummeted 11 bps on those sentiments, looking past the 4-month high Sep-23 JOLTS job openings data of 9.55mn vs the expected 9.40mn. The 2-yr yield dropped to 4.95%.
• The 4Q equities rally seems to have the stage set, with the VIX Index cooling off 7.0% down to 16.87 just overnight, and the MOVE Index sliding down 5.0% to reach the previous Sep-23 levels.
• China’s Oct-23 Caixin manufacturing PMI slid to 49.5, below the consensus’ anticipation of a stride towards 50.8.
• Volatility risks still loom as the US debt market is not out of the woods; the reduction in issuance is only temporary and deferred refinancing costs have risen dramatically, and to top that with the Israel’s unceasing aggression would mean adding more holes to the leaking bucket.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds further strengthened Wednesday (Nov 1, 2023), with the 10-yr benchmark series yield sliding 3.5 bps to 7.06%.
• IDR faltered against the USD (USD/IDR rebounded +0.31% to 15,935); DXY’s momentum has slowed from the dovish-leaning Fed, but Indonesia’s trade outlook still looks dim in light of the laggard Chinese PMI data.
• Indonesian gov’t securities (SBN) have posted a net inflow of IDR15.35tn throughout Oct-23, with insurance companies accumulating IDR10.5tn, Corporations and Securities accruing IDR21.1tn, and BI to also add to their balance sheet of up to IDR18.9tn. During the period, a total of net foreign outflows of IDR12.6tn was recorded.
• Yesterday’s SRBI auction recorded a total awarded amount of IDR4.0tn, a considerable improvement from the two last auction’s amount of IDR3.0tn and IDR2.3tn in Oct 27 and Oct 25, 2023, indicating a revamp in SBN-backed assets demand.
• We view today’s domestic debt market as well as equities to find enough relief to strengthen, trailing the US market. The risk perceptions in the domestic market have eased down along with the 5-yr CDS 1.2% decline to 97.47 overnight.
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 6.95-7.05% for today.
• Attractive Indo GB series to be traded today : FR0040, FR0059, FR0081, FR0096, FR0100.
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