07 September 2023
Fixed Income Report September 7, 2023
Global Market Updates
• It seems that market participants have revisited the possibility of the Fed bringing up the interest rate up a notch for one last time after some US economic data readings supported the case, dragging down Wall Street equities Wednesday (Sep 6, 2023).
• Institute for Supply Management’s US services index surged to 54.4, a level beyond the minimum growth threshold (>50) that topped its February reading and beat consensus estimates by far (52.5).
• This was followed up by outperformance in the ISM Services Employment, Services Business Activity, Services Prices, and Services New Orders readings, all of which might instigate a respark in inflationary pressure or at least hinder it from treading down to the Fed’s 2% target.
• Though Sep-23’s FOMC meeting rate hold remains a surefire scenario (92% likelihood), market participants have raised rate hikes possibilities for the Nov-23 and Dec-23’s FOMC (41-42%).
• This prospect sent 10-yr UST notes to hike c. 3 bps to 4.30%. The 2-yr UST notes followed suit by jumping c. 7 bps and closed at 5.01%, steepening the inversed 2s10s yield spread to -71 bps.
• Global bond yields overall closed higher Wednesday, with UK’s 10-yr gilt edging up 0.8 bps to 4.53%, Germany’s 10-yr bund gaining 4.2 bps to 2.65% and Japan’s 10-yr GB ticking up 0.2 bps to 0.66%.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds mostly closed lower Wednesday (Sep 6, 2023). The 10-yr benchmark series yield soared almost 10 bps to 6.52%.
• In Sep 5, 2023 alone, Indonesian government securities saw a net foreign inflow of IDR4.14tn, a considerably sizeable amount, possibly due to the end of summer season and investor’s back on their game and possibly the hunt for FR0100 in the primary market auction.
• This was not enough to sustain a rally in domestic bonds however, as a net outflow was recorded on throughout the past week (-IDR1.1tn), bolstered by outflows from domestic banks and government instituions.
• We see the sustained rally in USD amid hawkish and stronger economic outlook sentiments, and now further supported by the strong uprise in oil prices, to spark higher treasury yields and stands as a risk for more foreign outflows from domestic bonds to come, especially with no sign of China’s recovery soon.
• IDR closed mixed against world major currencies, depreciating against the USD (USD/IDR further increased by 0.18%) as hawkish airs loom and provide boost to the DXY.
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.
Disclaimer On
