19 Oktober 2023
Fixed Income Report October 19, 2023
Global Market Updates
• US equity indexes gave in to the pressures from soaring UST yields Wednesday (Oct 18, 2023), posting sharper contractions from compounded sentiments of Middle East escalation angsts and reignited hawkish ambience.
• The VIX Index jumped 7.5% overnight in light of heightening geopolitical tensions and a trifecta of stronger-than-expected US economic indicators this week; PPI, CPI and retail sales.
• US housing market data yesterday gave nuanced sentiments; Sep-23 housing starts came weaker at 1.36mn units as opposed to 1.38mn units, but Sep-23 building permits was strong at 1.47mn units as opposed to an expected decline to 1.45mn units.
• The 10-yr UST yields pushed higher 8 bps to reach 4.91%, while the 2-yr yields stood its ground in the 5.19% level. This was a considerably sharp bear steepening, thinning the inverse 2s10s spread to -28 bps.
• Markets are raising their expectations of a possible rate hike in Dec-23’s FOMC up to 42%, but we view the high term premiums should support the case for a rate hold to suffice, if a soft landing is the intended outcome .
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds took a heavy beating Wednesday (Oct 18, 2023), with the 10-yr benchmark series yield taking off by 9.8 bps to 6.86%.
• IDR weakened against USD and other global major currencies (USD/IDR rebounded 0.1% to 15,730).
• The pressure from soaring UST yields have seeped back into the Indonesian gov’t bond markets. This week up to Oct 17, 2023 alone, the net out flow from gov’t securities reached IDR12.97tn, with the banking sector pouring out IDR22.83tn of its positions and the non residents continuing its sell off amounting to IDR1.81tn.
• Mutual funds are also observed to trim their positions as much as IDR1.03tn, as well as the individual investors category by IDR4.99tn.
• We continue to reiterate our preference towards the front-end of the yield, due to their attractive valuations and UST yields to possibly already near its peak. Risk comes from possible BI interventions, as they are seen to start accruing SBNs as much as IDR17.49tn this week up to Oct 17, 2023.
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 6.85-6.95% for today.
• Attractive Indo GB series to be traded today : FR0040, FR0059, FR0081, FR0100.
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