31 Oktober 2023
Fixed Income Report October 31, 2023
Global Market Updates
• The equity-leaning market have, as indicated by VIX Index’s overnight tumble by 7.1% down to 19.75, shrugged off the Middle Eastern conflict jitters on the back of slower-than-expected ground invasion escalations. The market has been eager to partake in what many believe to be a Q4 rally driven by upbeat earnings growth.
• Wall Street, as a result, managed to rebound with DJI closing 1.58% higher, S&P 500 gaining 1.20% and Nasdaq strengthening 1.16%.
• The bond market, on the other hand, cancelled some of its gains from the liquidity redirection towards equities, propping the UST 10-yr yield up by another 4 bps to 4.88%, followed by the 2-yr yield that rebounded 4 bps to 5.03%. Pressures on bonds were also pouring in as investors were anticipating a continued supply overload condition for Treasury issuances ahead of Wednesday’s refunding announcement.
• We still view the attacks on Gaza to haunt the market indefinitely, with looming risks of multilateral interventions. The MOVE Index still hovers at the 131 level, a jump from Sep-23’s pre-escalation levels.
• Another looming risk for USTs comes from the BoJ’s possible decision to let their 10-yr yields rise above 1% by modifying their fixed-rate buying operations. Markets will be on watch on BoJ’s verdict today as a YCC tweak to above 1% could entail a considerable amount of fund repatriations from Treasuries.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds further strengthened Monday (Oct 30, 2023), with the 10-yr benchmark series yield plummeting by 9 bps to 7.11%.
• The 2s10s curve bull flattened to 25 bps, from yesterday’s 36 bps, indicating a respark of demand in the mid-to-long part of the curve.
• IDR rebounded against the USD (USD/IDR slid -0.31% to 15,890), still facing risks from dollar’s upside, while finding new support on a higher policy rate and new issuances.
• Today’s primary market’s gov’t securities auction (SUN) will feature a total of 8 series instead of the usual 7, with 7 reopenings including Indonesia’s first SDG bond series (FRSDG001), and one new issuance (FR0101) to replace the 5-year benchmark series in 2024.
• We believe the new issuance should attract a great deal of investors’ appetite, both foreign and domestic, as new issuances usually does, but more so if markets perceive that we’ve reached the peak of interest rates and that they can get an attractive price with considerable upsides down the road, especially with shorter-termed bonds.
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 7.05-7.15% for today.
• Attractive Indo GB series to be traded today : FR0040, FR0059, FR0081, FR0100.
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