31 Agustus 2023
Fixed Income Report August 31, 2023
Global Market Updates
• Wall Street equities strengthened Wednesday (Aug 30, 2023), with S&P 500, DJI and Nasdaq gaining 0.38%, 0.11% and 0.54%, respectively, bolstered by sentiments of the Fed to pull the brakes.
• The August ADP employment that came in weaker than expectations (177k additional private sector workers instead of the expected 195k) as well as the downward revision for 2Q23’s US GDP growth to 2.1% YoY from its preliminary 2.4% YoY reinforced investor’s anticipation of the current rates to stay and the Fed to forgo any rate hikes.
• Aside from the growth, downward revisions were also made for the GDP deflator from 2.2% to 2.0% YoY, and the core PCE price index from 3.8% to 3.7% YoY, indicating lower real output as well as lower inflation than was expected.
• This shows the Fed need not raise the rates any longer, portending to bond rallies as US Treasuries’s posted further gains though mild Wednesday, with the 10-year UST yield edging down by c. 0.6 bps to 4.11%, while the 2-year UST yield rose c. 3 bps back to 4.90%. The inverted 2s10s spread widened to -79 bps.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds mainly appreciated Wednesday (Aug 30, 2023). The 10-year Indonesian government bond benchmark series (FR0096) yields edged down 0.6 bps.
• The Indonesian gov’t 2s10s bond curve slightly widened to 10 bps (vs 9 bps previously).
• As of Aug 28, on a WoW basis we saw a net inflow of IDR7.9tn into Indonesian gov’t securities, led by inflows from the banking sector (IDR17.7tn) and insurance & pension funds (IDR7.3tn), due to the attractive yields against money market rates.
• Foreign funds has yet made a net comeback flow into Indo GBs, with net sell-offs continuing (IDR7.5tn WoW/IDR3.5tn daily flow as of Aug 28).
• The IDR further appreciated against the USD (USD/IDR dropped by 0.2%), following UST’s extended rally.
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 6.30-6.40% for today.
• Attractive Indo GB series to be traded today : FR0070, FR0082, FR0087, FR0096.
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