27 Oktober 2023
Fixed Income Report October 27, 2023
Global Market Updates
• Despite upbeat US 3Q23 GDP and tumbling yields, Wall Street equities continued to close in the red Thursday (Oct 27, 2023); with Nasdaq leading the loss (-1.76%), followed by S&P 500 (-1.18%) and DJI (-0.76%); as markets responded heavily to the uncertainty surrounding tech stocks while tensions escalate in the Middle East.
• Markets are pricing in a faltering economy within the coming months, overlooking yesterday’s strong 4.9% QoQ US 3Q23 GDP (vs expectations of 4.5% QoQ).
• US labor market was seen to have loosen its footing; weekly initial unemployment claims rose to 210k (vs expectations of 207k), accompanied by a higher continuing claims by 63k to 1.79mn (vs the expected 1.74mn), which will be to the detriment of the economy’s growth going forward
• The UST 10-yr yield retreated back by 9 bps to 4.86%, followed by the 2-yr’s yield easing back to 5.02% after the 7-yr UST auction of USD38bn posted stronger demand than was expected, posting a bid/cover of 2.7, the highest since Mar-20.
• The renewed appetite for bonds are likely due to market’s run to safe haven while valuations are fairly attractive, in anticipation of Middle-East escalations and downside to GDP growth in the coming quarter.
• We still view risks looming for USTs, as the increase in issuances is still set to continue while the demand side; unless the Fed pauses its balance sheet deleveraging; still looks frail.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds closed weaker Thursday (Oct 26, 2023), with the 10-yr benchmark series yield rebounding to 7.22% from the previous day’s 7.15%.
• The move bear steepened the 2s10s curve to 30 bps, as the shorter end of the curve also saw selloffs, shifting the overall curve upwards, and deeming the front end to be atrractive in valuation.
• IDR continued its depreciation against the USD (USD/IDR rose +0.3% to 15,920) and is likely to cancel out some of its loss against USD on the back UST yield’s tumble yesterday.
• The domestic bond market should be set to respond positively to yesterday’s reasonably strong UST auction. We continue to favor the front-end of the curve whilst holding off the longer duration until the demand-side of UST’s indeed show sustainable appetite.
• On a week-to-date basis up to Oct 25, 2023, net foreign outflows persisted and have amounted to IDR6.9tn, while domestic banks have reversed their net outflow position to a net inflow totaling IDR4.5tn.
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.
Disclaimer On
