18 Oktober 2023
Fixed Income Report October 18, 2023
Global Market Updates
• US equity indexes struggled to double down on its rally Tuesday (Oct 17, 2023), after heightened tension from the Middle East conflict and a strong retail sales reading that showed resilience in the US economy.
• A Gazan hospital blast occurred with the two sides tossing blames, dismantling a summit between Arab leaders as President Biden’s efforts to contain the situation, further threatening escalations which triggers market instability; the VIX Index rose 3.9% overnight.
• The US bond market was under pressure from “good economic” data: the Sep retail sales which rose 0.7% MoM (vs consensus of 0.3% MoM) with the Aug data revised higher to 0.8% MoM from 0.6% MoM, and US Sep manufacturing production that rose 0.4% MoM (vs consensus of a flat growth).
• The 10-yr UST yields soared c. 12 bps back to the 16-year highs of 4.83%, followed by an aggressive move by the 2-yr UST yields, jumping by 10 bps to 5.19%.
• Markets raised their expectations for a rate hike in Dec-23’s FOMC from yesterday’s shock, but we expect the Fed rates to be held at the current level, with term premiums to remain at their high levels to compensate for the FFR’s hold.
Domestic Market Updates
•Indonesian benchmark series of LCY government bonds edged lower Tuesday (Oct 17, 2023) with the front-end yield further bear-flattening the curve (2s10s curve stands at 32 bps). The 10-yr benchmark series yield ticked upwards to 6.75%.
•Yesterday’s gov’t LCY benchmark series auction raked in a total of IDR16.99tn, lower than the previous auction’s IDR22.42tn, but settled with a higher awarded nominal of IDR10.2tn from the previous IDR9.30tn.
•We view demand for the gov’t bonds was still reasonably strong, with the cut-off yield for all benchmark series coming in lower from the previous auction, most notably the FR0100 (6.85% vs 7.01%).
•IDR strengthened against USD and other global major currencies (USD/IDR fell 0.03% to 15,715).
•A considerable IDR12.97tn of net outflow was recorded in Indonesian gov’t securities just over the weekend (as of Oct 16, 2023), with outflows recorded from all investor categories, mostly from the banking sector that sold off IDR11.6tn of their positions. The sell off might reflect a profit-taking plight, as well as a cautious stance due to UST yields persistent clinging to the high levels.
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 6.70-6.80% for today.
•Attractive Indo GB series to be traded today : FR0040, FR0059, FR0081, FR0100.
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