Global Market Update
• The U.S. treasury yields continued to climb higher on Monday (01/10/22) ahead of inflation data release as well as Fed’s Chair Jerome Powell testimony.
• The yield on benchmark 10-year treasury note inched up 2 bps to 1.78% while yield on 30-year treasury bond 2.12%.
• Rising yields also weighed equity market. DJI and S&P 500 fell 0.45% & 0.14% respectively.
• Markets bet on U.S. inflation to increase 7% YoY in Dec-21, 20 bps higher than 6.8% in Nov-21.
• In response to fighting high inflation and improving job markets, the Fed started to take a more hawkish stance.
• The first FFR hikes in Mar-22 is likely. However U.S. banks are now seeing 4x rate hike in 2022.
• These all are underpinning why U.S. treasury yields moved on in the first 10 days of Jan-22.
• Following the U.S. treasury yields spike, government bond yields in emerging and developed market also increased.
Domestic Market Update
• The 10 year Indo GB yield increased 1 bps at 6.45% on Monday (01/10/22) in line with our daily forecast range of 6.35-6.45%.
• Rupiah continued to strengthen closed at IDR14,308/USD yesterday (vs IDR14,358/USD last week).
• However risk premium as reflected on 5-year Indo CDS rose to 79.50 bps from previously below 78.00 bps.
• On the data front, Bank Indonesia (BI) reported Consumer Confidence Index (CCI) fell 2 points to 118.3 in Dec-21 (vs 118.5 in Nov-21).
• Three out of six sub-indices weakened (economic outlook, income expectations for the next six months and job availability expectation).
• The weakening consumer future’s expectation may depict the risk from Covid-19 Omicron spread that will likely hinder economy to fully recover.
Market Projection
• Government will conduct sharia securities auction for 6 series including 3 series of new issuance (SPN-S 12072022, PBS034, PBS033) on Tuesday (01/11/22). The indicative target set by government at IDR11tn.
• Despite the increase in global government bond yield recently, we still believe that government will be able to achieve the funding target.
• Given the recent development, we expect the 10-year Indo GB yield to move within range of 6.40-6.50% today.
• Attractive Indo GB series to be traded today: FR0081, FR0086, FR0071, FR0078
Disclaimer On
