15 September 2023
Fixed Income Report September 15, 2023
Global Market Updates
• Wall Street equities strengthened Thursday (Sep 14, 2023), with the S&P 500, DJI and Nasdaq gaining by 0.84%, 0.96% and 0.82%, followed by rebounds across global equity indexes.
• US Treasury yields saw a rebound Thursday (10-yr notes hiked 4 bps to 4.29%, followed by 2-yr notes’ jump by 4 bps to 5.00%) on the back of resilient economy data readings, after previously slipping despite strong inflation data.
• Weekly jobless claims stood at 220k, increasing from 217k previously but fell short of market’s expectations of 225k. Robust August retail sales data and an uptick in producer price index also supported the case for a higher-for-longer interest rates.
• We view that this was largely affected by the rally in energy prices as PPI ex-food and energy slowed to 0.2% MoM from 0.3% MoM in July, or indicating the bite from high interest rates have already realized.
• Therefore, here onwards we see that USTs are to face limited downsides, with the USD to face limited upside, with several notable risks likely to come from: 1) funds repatriation to China and Japan as the biggest foreign fund constituent of USTs, as well as 2) investors’ preference to hold cash.
• The ECB have officially raised their key interest rate by 25 bps, in-line with market expectations, as part of their attempt to suppress inflationary pressures.
Domestic Market Updates
• The front-end of Indonesian benchmark series of LCY government bonds closed higher, whereas the back end still saw minor depreciation Thursday (Sep 14, 2023). The 10-yr benchmark series yield reatreated 1 bps to 6.63%. The 2s10s Indo GB spread stood flat at 42 bps.
• We expect domestic Indo GB to garner momentum towards the end of year given the prospect of no more rate hikes, and the yields have gone to attractive levels.
• Inflows have began to be observed this week (as of Sep 13, 2023), with conventional banks accruing the most positions (IDR8.67tn net inflow), followed by insurance and pension funds (IDR880bn), retail (IDR590bn) and mutual funds (IDR220bn).
• Foreign funds have yet to make a return to Indo GBs, posting a net outflow of IDR3.34tn this week alone.
• IDR was mixed against global major currencies, posting a rebound against the USD on limited DXY bullish sentiments. Markets will observe today’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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