07 November 2023
Fixed Income Report November 7, 2023
Global Market Updates
• Wall Street equities’ edged higher with its gain thinning out Monday (Nov 6, 2023); DJI ticked 0.10%, S&P 500 edged 0.18% and Nasdaq crept 0.30% as the US Treasury yields rebounded.
• The UST 10-yr yields resurfaced, jumping by 10 bps as a flurry of corporate bond issuances amounting to USD24bn took the stage Monday and left supply pressures piling up on the new UST issuances totaling USD112bn this week.
• The MOVE Index had bounced back by 2.5%, indicating resparked UST market worries. Today’s auction for USD48bn of 3-yr notes faces risk of a lack of absorption.
• US leveraged funds had overshot it short positions to at 6.34mn contracts, its highest level since 2006 and contributed to the rising yields, as funds believe the move in equities haven’t fully priced in the higher longer scenario.
• This sparked doubts whether the 4Q rally is a mirage considering the expected economic slowdown ahead coupled with the bleak tech outlook guidance in 4Q, which has been the main driving force in equities.
• European bonds were in the same tune; UK 10-yr yield jumped 8.9 bps to 4.38%, followed by Germany’s 10-yr yield leap by 9.4 bps to 2.74%.
• Crude prices rebounded, with Brent edging 0.34% as Saudi and Russia reaffirmed their production cut plans leading up to the year’s end.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds mainly strengthened Monday (Nov 6, 2023), with the 10-yr benchmark series edging up slightly and its yield remained at 6.84%.
• IDR posted a strong bounceback against USD (USD/IDR dropped -1.21% to 15,538); on the back of receding USD prospects, but is likely to weaken again today on the back of resurging yields.
•Asian market bonds were still pricing in last Friday’s sanguine US market mood, with Japan’s 10-yr yield plummeting by 4.3 bps, Malaysia’s yield falling by 7.1 bps, along with other Asian EMs. Today however, EM’s yields might stagnate or even rise back after UST supply pressure concerns resurfaced.
•This might eat into today’s sharia gov’t securities auction (SBSN) with an indicative target of IDR9tn, unchanged from the previous weak auction total bids of IDR8tn and total awarded of only IDR2tn, foreign’s lack of demand might be accentuated after 3Q23’s below consensus GDP of 4.94%.
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 6.80-7.00% for today.
• Attractive Indo GB series to be traded today : FR0040, FR0081, FR0096, FR0100.
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