20 Oktober 2023
Fixed Income Report October 20, 2023
Global Market Updates
• Global equity indexes collectively succumbed to the prolonged quantitative tightening environment as well as the heightening geopolitical tension that isn’t likely to see an end soon.
• The VIX Index advanced further by 11.3% to reach 21.4 as soaring 10-yr UST yields hammered stocks following Powell’s QT-leaning remarks and turgid labor market data. The 10-yr yields surged 6.2 bps to reach 4.98%, narrowing the inverted 2s10s curve to -16 bps, the highest level it has reached this year.
• Fed’s chair Jerome Powell addressed to the public in light of recent economic developments, highlighting the need to observe more data and to proceed cautiously, with still a long road ahead in the fight against inflation. Though another rate hike is not off the table yet, the high yields might just do the job for them.
• Yesterday’s economic indicator releases point towards an unrelenting labor market. The weekly Initial Jobless Claims unexpectedly fell to 198k (vs consensus of 212k), rendering the 4-week jobless Claim average at 205.7k or fell from 206.7 in the previous period.
• On the other hand, apparent holes in the economy are also visible, as the Oct-23 Philadelphia Fed business outlook was weaker at -9.0 than expectations of -7.0, the Sep-23 home sales fell -2% to 13-year low, and Sep-23 leading indicators posted its biggest 4-month decline of -0.7% MoM (vs the expected -0.4%).
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds mostly posted further losses Thursday (Oct 19, 2023), with the 10-yr benchmark series yield edging down to 6.85%.
• IDR weakened against USD and other global major currencies (USD/IDR rose 0.5% to 15,815).
• BI has intervened in the gov’t securities market to support the IDR, disbursing more than IDR2bn from their forex reserves. They have stepped up the game by unexpectedly raising their BI7DRR yesterday, alongside the launch of two additional forex instruments, the SVBI and its sharia counterpart, SUVBI, aimed at preventing further contractions in IDR’s value.
• Regional yields have also mirrored recent UST yield trends, with the Malaysian 10-yr gaining 1.7% and the Thai 10-yr jumping 2.8%. We view Indo GB 10-yr to to still face downside potential despite yesterday’s rate hike, as pressures from the global sentiment still outweighs incentives from the domestic.
• The domestic banks have been putting off their gov’t bond ownerships (IDR28.6tn sell-off WtD up to Oct 18, 2023) as they face an increasing credit demand and corporate loan demand.
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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