11 Oktober 2023
Fixed Income Report October 11, 2023
Global Market Updates
• Global equity indexes mainly continued its rally Tuesday (Oct 10, 2023), with US equity indexes closing higher supported by echoes of rate pause sentiments, after Fed’s Bostic dovish remark yesterday, as well as soothing news of mulled stimulatory policies from the gov’t of China.
• Upon resuming trade, US Treasuries saw the capped FFR prospect materialize, with the 10-yr UST notes plummeting 14.4 bps to 4.66%, and the 2-yr notes to tag along and fall 12 bps, rendering the 2s10s inverted spread to widen to -33 bps.
• The front-end of the curve is indicated to lag in demand, as the 3-yr UST notes auction of USD46bn struggled with a bid-to-cover ratio of 2.56, weaker than the 10-yr auction average of 2.72.
• Global yields was mainly subdued, with the German 10-yr bund yield remaining flat at 2.77%, the UK 10-yr gilt yield falling 5 bps to 4.43%, followed by the Japanese 10-yr GB that had fallen down to 0.77%.
• Policymakers of China mulls on unleashing an additional barrage of issuance of at least CNY1tn or equivalent to USD137bn of sovereign debt to kickstart its economy (predominantly through infrastructure projects) to meet its growth target, trimming on the unemployment rates, all while allowing the budget deficit to likely well exceed its limit of 3% cap set in Mar-23.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds posted further gains Monday (Oct 10, 2023), following encouraging global yields movement. The 10-yr benchmark series yield fell 5.2 bps to 6.95%. The 2s10s Indo GB spread narrowed to 57 bps.
• IDR weakened against most global major currencies, depreciating against the USD (USD/IDR jumped 0.29% to 15,735).
• The Chinese fresh round of stimulus should help galvanize IDR going forward, as the aforementioned intended allocation towards infrastructure projects will spark basic materials demand of which Indonesia will have space to fill in.
• There was lackluster demand in yesterday’s sharia gov’t securities auction, with an incoming bid of only IDR10.8tn and total awarded bids of only IDR5tn, a lower bid-to-cover of 1.12 (vs last auction’s 1.89) for the in-demand short-term PBS036 and its higher average awarded yield of 6.39% (vs last 6.24%).
• Current market conditions seem conducive for a strong rally in bonds, accompanied by a considerable retreat in the 5-yr CDS by 2.7% to 97.86 after having touched the 1% ceiling.
Market Forecast
• Given the recent developments that unfolded within the global and domestic markets, we expect the 10-yr Indo GB yield to move within the range of 6.80-6.90% for today.
• Attractive Indo GB series to be traded today : FR0082, FR0087, FR0096, FR0100.
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