Global Market Update
• The 10-year U.S. treasury yield climbed higher topping 1.59% on Monday (10/18/21). U.S. treasury yields rose 1-3 bps along the curve.
• U.S. industrial data came lower in September-21 compared to previous month.
• Industrial production rose 4.6% YoY, lower than in August-21 at 5.7%. At the same time capacity utilization stood at 75.2% decreasing 10 bps from previous month at 76.2%.
• However U.S. homebuilder sentiment bounced back in October-21 to 80 or 4 points higher than in September-21.
• U.S. stock market closed mixed. DJI dropped 0.10% while S&P 500 and Nasdaq Composite nudged up 0.34% and 0.84% respectively.
• The Fed’s officials have agreed to start curb the pace of QE either by mid-November or mid-December this year.
• Officials also considered an illustrative path of tapering by reducing asset purchase cumulatively USD15bn per month.
• China economic growth was reported at 4.9% YoY in 3Q21. The growth was slower than consensus expectation at 5.2% YoY and previous quarter at 7.9% YoY.
• Slowing China’s economic activity was attributable to power supply shortage and decelerating property market.
Domestic Market Update
• The 10-year Indo GB closed flat to 6.08% on Monday (10/18/21). The benchmark yield was still below our forecast range of 6.10%-6.20%.
• Despite rising U.S. treasury yield recently, the benchmark of local currency denominated government bond stayed low on the back of rupiah stability.
• However, rupiah slightly depreciated against USD and came in to IDR 14.110/USD yesterday. In line with rupiah depreciation, Indo 5-year CDS also climbed higher to 86 bps.
Market Projection.
• Bank Indonesia (BI) is expected to keep interest rates unchanged with BI-7 Day Reverse Repo at 3.50%; Lending Facility at 4.25% and Deposit Facility at 2.75%.
• We agree with the consensus estimate. In order to keep economy afloat amid a more hawkish tone from global central bank, maintaining policy rate steady would be central bank choice.
• We believe with the current level of policy rate could anchor inflation expectation and keep rupiah stable in line with its fundamental value.
• Government will conduct an auction for 5 series of Sovereign Sharia Securities today with indicative target set IDR5tn. We expect government to successfully raise funding amid lower target and investor appetite that remain high.
• We expect the 10 year Indo GB yield to slightly rise and tend to move within range of 6.10% - 6.20% today.
• Attractive Indo GB series to be traded today : FR0086, FR0090, FR0064, FR0071, FR0078, FR0087, FR0091, FR0062 and FR0092.
Disclaimer
