18 September 2023
Fixed Income Report September 18, 2023
Global Market Updates
• Wall Street indexes reversed their gains Friday (Sep 15, 2023) with the tech sector weighing down index movements the most as investors scrambled to safety ahead of the FOMC Meeting to be held this week. Dow Jones slipped 0.83%, the S&P 500 was down by 1.22% and Nasdaq fell 1.56%.
• At the same time US Treasuries closed lower, with the 10-yr UST yield rising by c. 4 bps to 4.33%, followed by the shorter 2-yr yields rise of 2 bps to 5.02%.
• A flurry of nuanced data releases last week propelled the bearish sentiments for stocks and T notes. Pressures came from hawkish ECB comments, pushing European bond yields soaring (10-yr German bund soared 8.2 bps to 2.68%, while 10-yr UK gilts leaped 7.7 bps to 4.36%).
• Moreover, a stronger-than-expected Sep Empire manufacturing activity (+20.9 vs expectations of -10.0) and Aug industrial production (0.4% vs 0.1%) portended resilient economy and potential for resistant inflation levels, further biting down on bonds.
• On the other hand, consumer sentiment conditions revealed by Michigan University reflected a faltering of consumer confidence in the current direction of the economy (fell to 67.7 and deeper than estimates of 69.1), which was aligned with the narrative that the Fed’s aggressive campaign against inflation is working.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds unanimously retreated further Friday (Sep 15, 2023). The 10-yr benchmark series yield jumped 3.8 bps to 6.67%. The 2s10s Indo GB spread widened to 45 bps.
• Indonesian external debt remained at manageable levels as of Jul-23, recorded at USD396.4bn or contracted 0.9% YoY on the back of declining private sector credit demand and a generally weak USD trend before its rally alongside energy prices.
• IDR mostly strengthened against global major currencies, appreciating slightly against the USD on limited DXY bullish sentiments (USD/IDR down -0.01%).
• Last Friday’s August trade balance data reading showed a higher-than-expected surplus of USD3.12bn (vs Jul-23’s USD1.29bn), bolstered by an improvement in the non-oil-and-gas trade surplus (USD4.47bn vs Jul-23’s USD3.20bn).
• The increase in surplus can be largely attributed to higher metal ore and CPO exports. With China’s August retail sales and industrial production improvement (4.6% and 4.5% YoY vs expectations of 3% and 3.9%, respectively) should bode well for Indonesia’s balance and IDR strength going forward.
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 6.55-6.65% for today.
• Attractive Indo GB series to be traded today : FR0081, FR0082, FR0087, FR0096, FR0100.
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