16 Oktober 2023
Fixed Income Report October 16, 2023
Global Market Updates
• Wall Street equity indexes was broadly subdued ending the Friday trading (Oct 13, 2023) as geopolitical tensions escalate with worries of contagion risk to widen within the Middle East area as the prospect of Iran to intermingle in the conflict arises, followed by a VIX index spike of 15.8%, while DJI managed to end up a notch (0.12%) as crude prices surged 5%.
• Michigan consumer sentiment came in weaker than expected at 63 vs 67.2 which was heavy for stocks but indicates economic distress which is synchronous with the Fed’s intended purpose.
• The US market seem to have retracted the idea of one more rate hike after the hot CPI reading, supported by Sep import price index that fell 0.3% MoM, deeper than expectations of 0.1% MoM and dovish comments from Fed’s Harker Friday.
• Market’s expectation for the outcomes of the two remaining FOMC meetings this year reflects that, with a high probability rate pause (93.8%) in Nov 1, 2023, and a most likely though not as strong 69.6% hold in Dec 13, 2023, according to CME Fedwatch.
• The 10-yr UST yield retreated back to 4.63% as result, deepening the 2s10s inversion back, with the 2-yr yields retreating by 2 bps to 5.04%. We view USTs to hold their current yield levels with some potential upsides as one of the asset while also harboring high volatility risk (MOVE Index still at 128 vs 20-yr avg. of 94). Several Fed official speeches this week will illuminate the market, with Powell’s to be Thursday’s highlight.
Domestic Market Updates
• Indonesian benchmark series of LCY government bonds movements were muted and halted its early-week gains Friday (Oct 13, 2023) as the hot US CPI Thursday sparked jitters. The 10-yr benchmark series yield stood flat at 6.76%. The 2s10s Indo GB spread bull flattened further to 37 bps.
• IDR managed to strengthen against global major currencies, cancelling more of the losses against USD (USD/IDR slipped 0.04% to 15,683).
• The 5-yr CDS rebounded to 95.08 reflecting some risk perceptions mounting on US CPI surprise, and the Middle East dispute escalation.
• The SBN-backed SRBI auction Friday saw diminished demands, collecting a total nominal awarded of only IDR7.8tn (vs Oct 11’s IDR14.1tn and the previous week’s IDR11.2tn).
• We view Indonesian gov’t securities market to trade at subdued levels the week ahead due to heightened uncertainties, but skewed towards the upside as the inflation tantrum has been largely contained. The front-end of the yield we view as attractive relative to the oversubscribed mid-to-long end of the curve.
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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