25 September 2023
Fixed Income Report September 25, 2023
Global Market Updates
• Major global stock indexes was closed mixed Friday (Sep 22, 2023), with US stock indexes struggling to find clear direction amid looming Fed hawkish pause sentiments.
• Several Fed comments made Friday struck clear hawkish tones, with many hinting that the road towards achieving their 2% inflation rate target may take longer than what most had previously predicted, possibly beyond 2024.
• The 10-yr UST yield retreated by -5.6 bps to 4.44%, followed suit by the 2-yr yields that slid 2 bps to 5.10%. Global bonds were mixed, with the German 10-yr bunds edging 0.3 bps higher to 2.74%, the UK 10-yr gilt falling 5.6 bps to 4.25% and the 10-yr JGB to harbor to 0.75%.
• Thus far, the markets are waging a 23% chance that Nov-23’s FOMC will see a 25 bps rate hike, while the numbers are a bit higher for the Dec-23’s FOMC (48% chance).
• The BoJ at their Friday meeting maintained their policy rates at -0.1%, in accordance with the market’s expectations, as well as left their 10-yr JGB yield target unchanged at 0%. BoJ affirms that they will need to keep an eye on their inflation for longer before any course-changing decision can be made.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds closed higher after depreciating in the first session Friday (Sep 22, 2023). The 10-yr benchmark series yield eased down 3.9 bps back to 6.74%. The 2s10s Indo GB spread narrowed to 52 bps.
• IDR was closed mixed against global major currencies, standing flat against the USD (USD/IDR was unchanged at 15,375).
• The disinflationary bull momentum for EMs have been in jeopardy since the strong rally in energy prices. Costlier energy prices might postpone the dovish turn that EM central banks had once seen to be around the corner.
• This comes with threats to energy importers’ currency and fiscal balance, including Indonesia, meaning a wider possibility for a further weakening in the IDR, as well as a shrinking fiscal balance to maintain fuel cost subsidies especially leading up to the 2024 elections.
• With these conditions in mind, we see Indo GB to remain disadvantaged, especially now that even advanced economies are at bay, implying more downsides to come.
Market Forecast
• Given the recent developments that unfolded within the global and domestic markets, we expect 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 : FR0082, FR0087, FR0096, FR0100.
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