A lower yield trend : the nexus of macro-factors
Key Takeaways:
• Domestic LCY government bond started 2023 with the strong rebound and buoyed by offshore investors fund flows. We believe lower yield trend may be elaborated from the macro points of view
• Disinflation and global slowdown to potentially ending the aggressive tightening. Moreover BI also signaled the 25 bps hike in Jan-23 to be the terminal rate citing a sufficient yet accommodative enough backing a stable price
• Recent IDR appreciation was driven by foreign inflows to SBN market and coupled with BI monetary operation through DHE FX TD to overcome FX liquidity and stabilize IDR.
• Fiscal consolidation to ensure supply side risk remain manageable while at the same time liquidity in the banking system stays adequate
• BI intervention namely through operation twist causes yield to flatten making short-term yield more competitive, yet maintaining long-term yield to spike less. This should provide opportunity for investors to optimize return
• A lower yield is likely and reasonable, we revise down our target for 10-year LCY benchmark at 6.58%/7.09%/7.68% implying a best to worst scenario, lower than our previous forecast.
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