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| The ‘flight to safety’ phenomenon occurred in the US treasury market, which was opened on Tuesday (10/10) after the Columbus Day holiday on Monday (10/9). This pushed down the UST 10Y UST yield by (-15) bps to 4.65%, followed by an increase in the S&P bond index for developed markets of 0.4%. Buying actions also occurred in emerging markets, as reflected by the 0.9% increase in the EMBI index, and the SBN market, as reflected by the decline in the INDOGB 10Y [(-7) bps to 6.95%], 5Y [(-5) bps to 6.76%] and 2Y yields [ (-2) bps to 6.46%]. However, we suspect that Bank Indonesia was the main actor behind the massive buying action, mainly due to the 0.3% drop in Rupiah exchange rate to IDR 15,735 per USD and low demand in the SBSN auction (see Fixed Income News). We project the INDOGB 10 yield to move up to 6.85-6.95% today, while Rupiah might experience more pressure and fall toward its technical support range of IDR 15,650-15,750 per USD. If the support is broken, Rupiah might depreciate further to IDR 16,000 per USD.
Fixed Income News: Ministry of Finance reduced new SBSN issuance at yesterday's auction to IDR 5tn (9/26: IDR 8tn), much lower than our estimate of IDR 10.75tn (9/26: IDR 27.8tn). Most of the SBSNs issued were short-term (2Y) PBS036 (IDR 4.35tn, 87% of the total issuance value), with a yield of 5.375%. We suspect that the decline in demand was caused by the ‘flight to safety’ phenomenon to developed market bonds. (DJPPR) Global Economic News: Fed officials sent dovish signals regarding the US treasury yield hike. Fed Vice Chair Phillip Jefferson stated that the Fed would consider the effect of the UST yield hike in the last three weeks in maintaining the balance of monetary policy. Dallas Fed President Lorie Logan also stated that the Fed's interest rate increase is unnecessary if the UST yield hike continues. We consider this statement good news for the market, and we project the UST yield hike has reached its lowest point at 4.8-4.9%. (Reuters) Domestic Economic News: BI’s real sales index for August came in at 204.1 (Jul: 203.3; BI Forc: 204.4) and is projected to decline to 200.2 in September, in line with Bank Indonesia’s consumer confidence index, which rose in August to 125.2 (Jul: 123.5) then fell in September to 121.7. In our opinion, the decline indicates a weaker household consumption growth in 3Q23 of 4.8-5% yoy (2Q23: 5.2% yoy). (Bank Indonesia) |
Recommendation: FR0040, FR0050, FR0068, FR0100.
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