14 September 2023
Fixed Income Report September 14, 2023
Global Market Updates
• Wall Street equities closed in the mix Wednesday (Sep 13, 2023), with the S&P 500 and Nasdaq gaining by 0.12% and 0.38%, whilst DJI slipped 0.2%.
• US August headline inflation reading came stronger than expectations on a yearly basis (3.7% YoY vs consensus of 3.6%) as well as the monthly core inflation readings (0.3% MoM vs consensus of 0.2% MoM).
• Despite an observed inflation acceleration excluding food and energy prices, swap markets have increasingly priced in more rate cuts probabilities to occur next year, as soon as Sep-24. This entails putting a cap to UST yields from further progressing, possibly putting an end to DXY’s rally.
• Sure enough, UST yields as of Sep 13, 2023 stood at 4.25% for the 10-yr notes, slipping 2 bps and 4.96% for the 2-yr notes, down 2 bps as well even when CPI was shown to be resistant.
• The outlook for Sep-23’s FOMC meeting remains a sure-fire rate hold, though Nov-23 and Dec-23’ FOMC outcome likelihoods remain elusive. We view that the Fed will no longer need to raise rates this year.
• ECB, on the other hand are looking at a hawkish move as their best bet later today (est. 25 bps hike) given the still-hostile inflationary environment, setting up EUR for a strengthened rally.
• Today the BoJ is set to hold an operation of five-year loans offerings for banks in order to purchase JGBs with aims to keep yields in check. Swap markets indicate that traders expect BoJ rate hikes to commence as soon as Jan-24, from previously expected Sep-24.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds further retreated Wednesday (Sep 13, 2023). The 10-yr benchmark series yield rose another 1.1 bps to 6.64%. The 2s10s Indo GB spread stood flat at 41 bps.
• With markets expecting no aggressive cards left to be played by the Fed and UST yields likely to be capped from rising any further, we can expect a u-turn in foreign flows back to domestic bond markets, incrementally.
• On top of that, domestic yields have reached considerably attractive levels. Historically, Indo GB 10-yr yields have been shown to experience a pick-up throughout Aug-Sep, and begins to decline Oct-Jan.
• IDR mostly weakened against global major currencies, with continued depreciation against the USD on soft-landing and higher-for-longer sentiments. Markets will observe Friday’s trade data in search of any incentives for IDR.
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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