Research & Stock Picks

Daily Report

10 July 2023

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Expect more corrections in domestic bond market

Domestic bond indices ICBI and IDMA both fell -0.2% on Friday (7/7) due to adjustments in global investors' expectations of the Fed's rate hike plan in 2H23. INDOGB yields went up, with the biggest increase recorded by 2Y (+11 bps to 6.02%), followed by 5Y (+5 bps to 5.97%) and 10Y (+4 bps to 6.24%). We believe that the 11 bps 2Y yield hike was caused by Bank Indonesia's operation twist (selling short-term bonds and buying long-term bonds), which was done as part of its currency intervention. Unfortunately, the central bank’s intervention could not stop the depreciation of rupiah (0.6% to IDR 15,135 per USD). Given the ongoing correction in the global bond market on Friday, we believe we will see more corrections in the domestic bond market today. We project INDOGB 10Y yield to decline to 6.25-6.35%, while rupiah might depreciate to IDR 15,100-15,200 per USD.

Fixed Income News:  Corporate bond issuance fell by -36% to IDR 46.31tn in 1H23 (1H22: IDR 72.73tn). According to PT Pemeringkat Efek Indonesia (Pefindo), the decline was caused by the Federal Reserve's and Bank Indonesia's aggressive rate policies. Another factor causing the decline was the lower value of maturing corporate bonds (IDR 126.9tn, 2022: IDR 157tn). In addition, corporate sukuk issuance also fell sharply to IDR 45.1tn in 1H23 (1H22: IDR 154.9tn). (Kontan)

Global Economic News:  US labor market expansion slowed down in June, as reflected by the lower-than-consensus non-farm payrolls figure (209,000, May: 306,000; Cons Jun: 225,000). However, the US unemployment rate fell to 3.6% (May: 3.7%; Cons Jun: 3.6%), while workforce participation rate remained unchanged at 62.6%. In our opinion, the data will make the Fed even more confident about raising its benchmark interest rate this month by 25 bps to 5.5%, since it is feared that if the Fed choose to keep its rate, the US Phillip's curve disinflation process might be hampered.(Wall Street Journal)

Domestic Economic News:  Foreign exchange reserves fell to USD 137.5bn in June (May: USD 139.3bn). According to Bank Indonesia, the decline was caused by the payment of the government's foreign debt. Regarding ratios, the current value of foreign exchange reserves is equivalent to 6.1 months of imports or 6 months of imports and short-term foreign debt payments. We believe that the drop was caused by Bank Indonesia's currency intervention to maintain Rupiah within the range of IDR 14,900-15,000 per USD. (Bank Indonesia)

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Samuel's Daily Macro and Fixed Income Report 10 Juli 2023 (Eng)
Samuel's Daily Macro and Fixed Income Report 10 Juli 2023 (Ind)

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Samuel's Daily Macro and Fixed Income Report 10 Juli 2023 (Eng)
Samuel's Daily Macro and Fixed Income Report 10 Juli 2023 (Ind)

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