02 Oktober 2023
Fixed Income Report October 2, 2023
Global Market Updates
• Major global stock indexes mostly closed higher Friday (Sep 29, 2023), with US stock indexes closing in the mix, supported by prospects of a waning inflationary pressure but at the same time dragged by hawkish comments from the Fed’s Williams, reiterating the higher-for-longer agenda.
• The PCE core deflator reading Friday initially provided boost for US Treasuries, in line with expectations by slowing to 3.9% YoY in Aug-23 (previously 4.3% YoY in Jul-23), but gains were wiped off by the aforementioned hawkish remarks. The 10-yr UST yield, as a result, stood flat at 4.59% Friday, while the 2-yr yield stood still ticked down to 5.03%.
• European global bonds found relief Friday after the Sep-23 Eurozone CPI eased to 4.3% YoY (from 5.2% in Aug-23), with the German 10-yr bunds tumbling 9.1 bps to 2.84%, the UK 10-yr gilt rocketing 4.7 bps to 4.44%.
• US government shutdown had been averted at the last minute, buying the Congress time until Nov 12, 2023 to reach resolve regarding the funding bills for the coming fiscal year.
• China’s decline in private sector PMI (Caixin) in Sep-23 indicates private businesses and exports are still under pressure, with employment rates to postpone improvements as business hold-off hirings, still posing as a risk to the greater global economy.
• The BoJ has stepped into the bond market for the third time this year, taming the slow rise of 10-yr yields which had reached a decade high of 0.77%. The broader view is that a normalization in BoJ’s monetary policy is to come, possibly letting yields to reach 1.0% in its combat against inflation and Yen’s decline.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds saw a continued downtrend Friday (Sep 29, 2023). The 10-yr benchmark series yield rose to 6.89%. The 2s10s Indo GB spread bear steepened to 63 bps.
• IDR closed mixed against global major currencies, posting an appreciation against the USD (USD/IDR slipped 0.42% to 15,455).
• Despite this, we anticipate more hurdles ahead for the IDR, mainly weighed down by the uptrend in UST yields and crude. As a net crude importer, the strong oil rally amid supply tightening will eat into Indonesia’s current account balance.
• We still view outflow risks to loom over domestic gov’t securities in the coming months as high uncertainty remains the theme in the broader market, with options for another rate hike still on the table for the Fed’s gather-around in Dec-23.
• The new SRBI instrument launched by BI showed initial enthusiasms from investors but lacked sustained support for the debt market and IDR, overshadowed by global sentiments and risk-off tendencies.
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 : FR0082, FR0087, FR0096, FR0100.
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