13 Oktober 2023
Fixed Income Report October 13, 2023
Global Market Updates
• Equity indexes in Asia mainly continued its rally Thursday (Oct 12, 2023), while the US equities snapped its rally after faced with hotter-than-expected CPI data, with USTs cancelling its prospective gains achieved earlier this week.
• US Sep-23 CPI readings came in at a 3.7% YoY/0.4% MoM rise vs expectations of a weaker 3.6% YoY/0.3% MoM. However, Core CPI excluding energy and food was in alignment with projections, cooling to 4.1% YoY/0.3% MoM.
• The 10-yr UST yield surged by 12.0 bps back to 4.70% as result, putting rate hikes back into the conversation, followed by weak demands in the 30-yr UST auction of USD20bn with a a bid-to-cover ratio of 2.35, below its average of 2.39 of 10 previous auctions.
• Out of the 8 Fed officials, 2 have given dovish remarks regarding the recent surge in UST yields preceding the PPI and CPI readings, saying that high yields should assist the Fed in tightening campaign, 2 have given neutral remarks, whereas a weight bearing 4 of them have given hawkish remarks.
• We maintain that further hikes are unlikely going forward, with the inflation uptick mainly due to energy’s volatility, which otherwise show a disinflation trend, coupled with recent American citizens struggling with multiple jobs indicating conditions make it hard to make ends meet topped with soaring mortgage rates.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds posted further gains Thursday (Oct 12, 2023), following solid demands both foreign and domestic. The 10-yr benchmark series yield fell 8.9 bps to 6.76%. The 2s10s Indo GB spread bull flattened further to 37 bps.
• IDR closed mixed against global major currencies, strengthening against the USD (USD/IDR slipped 0.02% to 15,690).
• On a WoW basis up to Oct 11, 2023, Indonesian gov’t securities accrued IDR9.3tn of net inflows, with the banking sector accumulating most of the accrual (IDR10.3tn), and most of its purchases of IDR4.56tn made in Oct 11.
• On the back of the Indonesian gov’t bond frenzy and yesterday’s hot US CPI, the Indo GB 10-yr and UST 10-yr spread has plummeted to the lowest levels seen this year, hitting 203 bps as of Oct 12, 2023, beating Mar-23’s lowest of 207 bps during the SVB bank crisis.
• The 5-yr CDS slid by another 1.3% to 93.08, we expect it to remain at 85-95 bps throughout the remainder of 2023.
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 6.70-6.80% for today.
• Attractive Indo GB series to be traded today : FR0059, FR0081, FR0096, FR0100.
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