26 Oktober 2023
Fixed Income Report October 26, 2023
Global Market Updates
• Nasdaq slid more than 2% after subpar earnings results from Alphabet, followed by DJI and S&P 500’s slump as US equities succumbed to several bearish catalysts Wednesday (Oct 25, 2023) including the strong US housing data and weak UST auctions, calling for reiteration of a hawkish-tilted narrative.
• The US Sep-23 new home sales rose 12.3% MoM to 759k units (vs expectations of 680k). We view, however, that the US housing market can be better be depicted by the more recent data such as weekly MBA mortgage applications that fell 1.0%. Coupled with 30-yr mortgage rates reaching 23-year highs of 7.9%, we view the housing market should weaken significantly in the coming months.
• While that shock did its part in UST 10-yr yield’s push towards 4.95%, followed by UST 2-yr yield’s hike to 5.08%, it is more accurately explained by the lackluster demand seen in yesterday’s UST 5-yr’s USD53bn auction, garnering only a bid-to-cover ratio of 2.36 vs the average of 2.54.
• This highlighted a more fundamental problem the US debt market is facing, with the mounting issuances to support sovereign debt interest payment in a tight environment far outpacing the demand stored within the market; China and Japan as the top UST holders have got their own problems to fix at home.
• BOJ, on the receiving end of a slumping yen due to the renewed boost for USD, saw yen flying past its 150 USD/JPY ceiling, raising the likelihood of an intervention to be seen in next week’s meeting.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds rebounded stronger Wednesday (Oct 25, 2023), with the 10-yr benchmark series yield easing further to 7.15% from previous day’s 7.19%.
• IDR resumed its depreciation against the USD (USD/IDR rebounded +0.1% to 15,870) and is poised to face further depreciation as the USD received a value boost from the recent UST yield surge.
• Good news from US economic data in a tightening cycle is bad news for markets in particular the EMs. We view UST 10-yr yield bump might instigate a shock to the domestic 10-yr yield today.
• On a week-to-date basis up to Oct 24, 2023, we continue to see foreign outflows from the Indonesian gov’t securities up to IDR4.99tn, followed by domestic banks (IDR2.86tn).
• We continue to favor the shorter end of the domestic curve, as it is largely trading at a discounted value, whilst remaining cautious of a further rise in the UST yields as the market has not yet priced in the fundamentals, with 10-yr possibly penetrating through the 5% ceiling.
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 7.15-7.25% for today.
• Attractive Indo GB series to be traded today : FR0040, FR0059, FR0081, FR0100.
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