04 September 2023
Fixed Income Report September 4, 2023
Global Market Updates
• Friday’s US employment data reading showed that the beginning of the end of a tight labor market has started, with the unemployment rate reaching levels last seen in Feb-22 (3.8% vs consensus of 3.5%).
• The 10-year UST yield shot up by almost 9 bps to 4.18%, following strong ISM manufacturing PMI readings (47.6 vs consensus of 47) and solid growth in non-farm payrolls (187k vs consensus of 170k) that tempered optimisms surrounding cooling labor market data.
• At the same time, the 2-year UST yield gained c. 2 bps to 4.87%. The inverted 2s10s spread shrank to -69 bps.
• Going forward, however, the Fed is seen to likely hold rates where they are at, as reflected by the 50% chance in interest swap rates for Nov-23, and a fully priced in rate cut to commence in Jul-24.
• Given this prospect, the front end yields are looking at bull runs ahead, with stocks to gain benefit as well.
Domestic Market Updates
• Short-end Indonesian benchmark series of LCY government bonds ended higher Friday (Sep 1, 2023). The 5-yr benchmark series posted the most gain with its yield plummeting by 3 bps, whereas the 10-yr benchmark series yield edged up 1 bps.
• We see the short-end bode to receive bullish rate hold sentiments from the US, and the longer terms to remain sideways if the narrative persists towards the end of the year.
• The Indonesian gov’t 2s10s yield curve further widened to stood flat at 21 bps as of Sep 1, 2023.
• IDR closed mixed against world major currencies, depreciating against the USD (USD/IDR ticked up 0.1%).
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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