23 Oktober 2023
Fixed Income Report October 23, 2023
Global Market Updates
• Wall Street indexes closed on a weak note last Friday (Oct 20, 2023), still on the back of Middle East conflict jitters and its contagion risks, the DJI slumped -0.86%, S&P 500 fell -1.26% and Nasdaq slipped -1.53%.
• Aggressions from the surrounding countries such as Iraq, Syria and Yemen raised concerns of the conflict to convert into a wider scale involving many.
• Comments from Fed’s Harker, Mester, and Bostic all seems to align with the narrative that the interest rates have peaked and what’s left to see is a gradual series of QE to commence somewhere in 2H24.
• The UST 10-yr yields have eased by 7.2 bps to 4.93%, cancelling its march beyond 5.0% based on the dovish Fed as well as an observed boost in demand for the safe haven amid geopolitical unrest. The 2-yr UST retreated by 7 bps down to 5.07%, bull flattening the 2s10s inverted spread that now stands at -13 bps.
• This week the wider market will take a close look at 3Q23 GDP data from South Korea, followed by CPI readings from Australia, Singapore and Tokyo to get a sense of where the economy stands, but above all will still be largely dictated by the movement in UST yields.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds have begun to price in what seems to be a recourse in BI’s monetary trajectory,postingahugesell-offFriday(Oct 20, 2023), with the 10-yr benchmark series yield surging past the 7.0% ceiling to 7.8%, a worrisome 22.5 bps jump.
• The all-hands-on-deck stance from BI to protect IDR from further depreciating could mean more QT hikes to come, especially with the risk of a further rise in UST yields, and China’s still laggard economic recovery to support Indonesia’s current account posture.
• IDR weakened against USD and other global major currencies (USD/IDR rose 0.4% to 15,875). The IDR might get some breathing room today from Friday’s DXY slump on stronger UST.
• We also observe based on recent Indonesian gov’t securities auctions that awarded bids value tend to rise, which is concurrent with the recent reported widening in the fiscal deficit. The seeking of additional funds through issuances poses further downside risks for bonds to come.
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 7.00-7.20% for today.
• Attractive Indo GB series to be traded today : FR0040, FR0059, FR0081, FR0100.
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