04 Agustus 2023
Fixed Income Report August 04, 2023
Global Market Updates
• The slide in longer-termed treasuries continued into Thursday (Aug 3, 2023), dragging down US equities amid concerns over an expanding budget deficit while greeted with stronger-than-expected economic data that likely points towards a soft-landing.
• The 10-year US Treasury note shot up by +9.8 bps to 4.18%, inducing a sharp steepening the 2s10s UST yield curve to -70 bps.
• We view the long-termed treasury forced sellings, most likely done by pension funds and insurance companies, shouldn’t last long as they are still one of the safest asset classes in the world with hefty liquidity.
• Regulations and rules could be amended to revive funds appetite into returning to the long term bonds, as what happened post S&P’s downgrade of the US back in 2011.
• The other key-risk in motion would be the JGB’s creeping-up, it hiked another 3 bps yesterday. The BoJ have intervened for the second time this week, but they are likely to allow further yield as a prelude for a rate hike. Around USD2.5tn of Japanese funds held in the US have risk of steady repatriation, contributing for treasuries’ further downside risk. We view US higher issuances to also address this issue.
Domestic Market Updates
• Indonesia’s benchmark series of LCY government bonds continued to weaken Thursday (Aug 3, 2023), where the 10-year (FR0096) yield have now reached 6.28%.
• The 2s10s Indo GB yield curve widened back to 29 bps after staying at the lower range of c. 23bps for the past week.
• Continued UST selloffs narrowed the spread between UST 10-year and Indo GB 10-year to 210.8 bps. Coupled with BoJ’s YCC tweaking, further increased risk of slowed foreign inflow or even an outflow could ensue.
• IDR continued to weaken against the USD. We observe the DXY to close lower after strengthening this past week. The IDR should be supported by BI’s triple intervention scheme.
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 6.25-6.35% for today.
• Attractive Indo GB series to be traded today : FR0059, FR0081, FR0082, FR0087, FR0096.
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