22 September 2023
Fixed Income Report September 22, 2023
Global Market Updates
• Major global stock indexes unanimously slumped Thursday (Sep 21, 2023) as the Fed’s hawkish pause struck markets across, with a brewing threat from Japan’s hot wage growth which could entail the end of a negative interest rate era for the land of the rising sun.
• US stocks slipped further Thursday amid pressures from bond yields’ surge and a resilient labor market. The 10-yr UST yield soared by another 8.7 bps to 4.49%, while the shorter 2-yr yields stood flat at 5.12%.
• This was a clear bear steepener pattern that has proven to be bad news for equities (US 2s10s inverted curve now narrowed to -63 bps), accompanied by the VIX Index surging 15.9% to 17.54.
• The other bear news came from US weekly initial unemployment claims that unexpectedly slid to a 7-month low of 201k (vs market forecasts of a rise to 225k), accompanied by a fall in weekly continuing claims to 1.66mn (vs expectations of a rise to 1.69mn), further justifying the Fed’s hawkish stance.
• Market’s focus will also shift towards today’s BoJ meeting in search for guidance, with economists polled by Reuters led to believe that BoJ are to commence tightening up by early 2024, and out a halt to its yield control scheme by end of 2024. The 10-yr JGB has surged to 0.75%, with JPY believed to face more upside.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds resumed its downturn Thursday (Sep 21, 2023). The 10-yr benchmark series yield edged down jumped 3.9 bps to 6.78%. The 2s10s Indo GB spread stood widened to 58 bps.
• Bank of Indonesia’s maintained their BI7DRR at 5.75%, in-line with market expectations.
• IDR mostly strengthened against global major currencies, rebounding slightly against the USD (USD/IDR slipped -0.06%). Taking into consideration the global market dynamics, the IDR has stood a robust ground against other emerging economies (+1% YTD) as opposed to INR (-0.5% YTD), PHP (-2.3% YTD), VND (-2.9% YTD) and THB (-4.8% YTD), partly supported by increased participation in the TD DHE scheme (USD1,334bn in Sep-23 vs USD568bn in Aug-23).
• The shorter-medium-termed Indo GBs saw the most volatility in movements point towards banks to mainly drive the market, as opposed to pension funds that mostly deal with the back-end of the curve.
• Banks might need to liquidate their bonds positions as indicated by an increase in loans demand from BI’s recent survey that showed loan demands from corporations to pickup in Aug-23 from Jul-23, and implied to continue picking up in Sep-23, lifting the overall 3Q23 loan demand.
Market Forecast
• Given the recent developments that unfolded within the global and domestic markets, we expect a bearish trend to continue in line with a strong surge in the 5-yr CDS as a market risk-perception proxy, with the 10-yr Indo GB yield to move within the range of 6.75-6.85% for today.
• Attractive Indo GB series to be traded today : FR0070, FR0077, FR0096, FR0100.
Disclaimer On
