Global Market Updates
• Wall Street indexes weakened Tuesday (Sep 19, 2023) as there was lack of support from Treasuries ahead of the FOMC meeting; S&P 500 closed 0.22% lower, Nasdaq also went down 0.22% and DJI fell 0.31%.
• US Treasury notes faltered Tuesday, with the 10-yr UST yield jumping by c. 5 bps to 4.37%, while the shorter 2-yr yields gained another c. 3 bps to 5.08%.
• Investor’s cold feet stems from uncertainty of whether another rate hike is to come post-Sep-23’s FOMC meeting, given some labor market indicators that remained hot as well as a picking-up in inflationary pressure from crude’s strong rally.
• We maintain our view, however, that the Fed should be done with its rate hikes as the current high rate environment has already caused economic setbacks as well as raised companies’ cost of funds significantly and raising rates anymore could do more damage than necessary.
• US Aug housing starts have already plummeted 11.3% to 1.3mn far below market expectations of just a 1% slip, a clear indication of citizens forestalling high mortgage pressures.
• The Eurozone in particular is still faced with stubbornly high inflation, with their Aug core CPI at 5.3% YoY, and is prone to more aggressive rate hikes. Upon these developments the OECD has down-revised their 2024 GDP forecast to 2.7% from 3%.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds continued to close lower Tuesday (Sep 19, 2023). The 10-yr benchmark series yield surged c. 4 bps to 6.74%. The 2s10s Indo GB spread further widened to 53 bps.
• Yesterday’s government securities auction showed increased participation reflected from higher incoming bids of IDR28.8tn (vs previous auction’s lackluster IDR20tn), though not as high as the previous month’s levels of IDR30 – 40tn on the back of risk-off sentiments as well as a preference switch-over to the new instrument, SRBI, which took the fixed income market by storm Friday, Sep 15, 2023.
• For the past week leading up to Sep 18, 2023, government securities saw a total net outflow of IDR37tn. Foreign has yet to find Indo GB’s attractive, while banks remain hesitant from entering the bond market possibly due to the JIBOR-12M rate still standing at around 6.9%.
• IDR mostly weaken against global major currencies, depreciating slightly against the USD on limited DXY
bullish sentiments (USD/IDR down +0.07%).
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 6.75-6.85% for today.
• Attractive Indo GB series to be traded today : FR0081, FR0082, FR0087, FR0096, FR0100.
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