25 Oktober 2023
Fixed Income Report October 25, 2023
Global Market Updates
• Wall Street indexes managed to rebound Tuesday (Oct 24, 2023) on the back of easing yields and encouraging 3Q23 earnings results.
• Tensions in the Middle East spurred back after yesterday’s UN Security Council meeting has yet to produce peacekeeping resolve and resulted in Israel’s renewed vow to escalate their attacks, invoking contagion risks as Iranian-backed militant retaliation seems to be on the edge.
• UST 10-yr yields slid 1.9 bps to 4.83%, followed by UST 2-yr yield’s slide down to 5.02% despite a lackluster demand at the 2-yr UST note auction at a bid-to-cover of 2.64 vs average’s 2.76.
• The US Oct manufacturing PMI reading came in at a stronger 50.0, which markets should have declined by now (49.5 was the consensus) in a tight environment and goes against the Fed’s favor.
• Global yields also followed suit; the 10-yr German bund yield slipped 4.6 bps to 2.83%, the UK 10-yr gilts fell further by 5.9 bps to 4.54%, and the 10-yr JGB to ease 1.5 bps to 0.86%.
• Encouraging news for the Asian markets as well as globally came from China’s legislative approval to raise their fiscal deficit for 2023 to 3.8% of GDP (vs 3% in Mar-23), additional sovereign debt worth USD137bn to be issued in 4Q23 and an un unexpected rare visit by President Xi Jinping to the PBoC.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds was closed mixed Tuesday (Oct 24, 2023), with the 10-yr benchmark series yield easing down from previous day’s 7.30% to 7.19%.
• The short-end of the curve continued its yield hike yesterday, rendering the 2s10s curve at 33 bps.
• IDR posted its first rebound after 5 consecutive days of defeat against the USD and other global major currencies (USD/IDR sank -0.5% to 15,850).
• These positive movements were also accompanied by a diminishing risk perception as reflected by the surmountable drop in 5-yr CDS by 4.1% down to 98.82.
• Appetite for Indonesian gov’t sukuk remains subdued as reflected by yesterday’s lackluster government sukuk auction that only attracted IDR8.2tn of incoming bids and IDR2tn of awarded bids (vs last auction’s IDR10.8tn and IDR5tn).
• Day-to-day foreign outflows in Indonesian gov’t securities has resumed as of Oct 23, 2023, totaling up to IDR3.7tn.
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 7.10-7.20% for today.
• Attractive Indo GB series to be traded today : FR0040, FR0059, FR0081, FR0100.
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