13 September 2023
Fixed Income Report September 13, 2023
Global Market Updates
• Wall Street equities lost its steam Tuesday (Sep 12, 2023) as the tech sector reported weaker-than-expected results, while energy stocks continued its appreciation from crude’s sustained rally.
• On the basis of resilient economy and bull energy prices, today’s US CPI reading, which takes the center of global markets’ attention amidst uncertainties, is anticipated to reflect a rebound in inflationary pressures, also shown in the steady rise of 10-yr breakeven rates for the past weeks.
• If the CPI does indeed pick up, markets will have to leave the door open for hawkish possibilities from the Fed, which will definitely drag down stocks and leave more space for higher yields.
• US 10-year Treasury note yields slid 2 bps to 4.27%, while the more sensitive the shorter-termed 2-yr notes edged up 1 bps to 4.98%.
• While BoJ’s clear cut plan of putting an end to its negative interest rates will incite sluggish JGBs, it is unclear if fund holders could find enough confidence to reenter the US market, with inflationary pressures brewing.
• Sparked by inflation expectations of the Euro Area to remain high at 3% up to next year, 10-yr German bunds rose 0.5 bps to 2.6%, while 10-yr UK gilts slipped -5.6 bps to 4.4%.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds further retreated Tuesday (Sep 12, 2023). The 10-yr benchmark series yield rose 4 bps to 6.63%. The 2s10s Indo GB spread further widened to 42 bps (previously 38 bps).
• Investors’ fund allocation shift towards the US and away from EM, notwithstanding Indonesia, according to a survey by BofA might persist.
• We view Indonesian bonds to have enough allure at the current yields to invoke an inflow once again, given the prospects of steady interest rates. Lower yields are likely to be seen today.
• Even yesterday’s gov’t sukuk auction secured a total incoming bids of IDR31.3tn, 47% more than last auction’s IDR21.3tn, and a total awarded bids of IDR9tn, rising from last auction’s IDR6tn as refunding needs has picked up from the maturing of several series.
• As expected, the front-end sukuk were the most sought after (PBS036) given their discounted nature, garnering a total of IDR17.3tn of bids.
• IDR was mixed against global major currencies, while depreciating against the USD with more strengthening from the DXY on the way backed by higher inflation expectations and crude’s strong rally.
Market Forecast
• Given the recent developments that unfolded within the global and domestic markets, we expect the 10 year Indo GB yield to move within the range of 6.50-6.60% for today.
• Attractive Indo GB series to be traded today : FR0081, FR0082, FR0087, FR0096, FR0100.
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