Research & Stock Picks

Daily Report

08 November 2023

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Getting closer to an inverted INDOGB yield curve

The 10Y INDOGB yield fell -16 bps on Tuesday (11/7) to 6.69%, which widened the inverted yield spread between 10Y Vs 2Y INDOGB to -16 bps (6/11: -1.3 bps). In our opinion, the transformation of the inverted pattern still needs to be confirmed in the next few days, since our yield curve estimate still shows a flat pattern in the range of 6.6-7.1% (Figure 1). However, we can’t deny that this movement reflects the psychology of SBN investors, who are increasingly worried about Indonesia's economic prospects in the future after the release of the lower-than-expected 3Q23 GDP growth data (4.94% yoy, cons: 5% yoy). The surprising MKMK verdict, which increased short-term political uncertainty regarding the 2024 elections, as well as the Hodrick-Prescott filter estimates, which shows the tendency of Indonesia’s economy to ‘overheat’ (see Disappointing effect of pre-election fiscal stimulus), apparently have put a psychological burden on SBN investors. We expect the 10Y INDOGB yield to consolidate at 6.7-6.8% today, and Rupiah might stay at IDR 15,600-15,700 per USD.

Fixed Income News: Incoming bids at yesterday's SBSN auction reached IDR 15.9tn (10/24: IDR 8.2tn), in line with our estimate (IDR 14-18tn). However, the new SBSN issuance value only rose slightly to IDR 2.2tn (10/24: IDR 2tn), with 2-year PBS036 (IDR 1tn)  and 6-month SPSN (IDR 840bn) as the series with the largest issuance value. The relatively low issuance value may be caused by the Ministry of Finance's decision to concentrate on global sukuk issuance (5Y and 10Y), with an issuance target of USD 2-3bn. (DJPPR)

Global Economic News: The Philippines’ CPI inflation fell to 4.9% yoy in October (Sep: 6.1% yoy; Cons: 5.6% yoy). Meanwhile, the core CPI inflation fell to 5.3% yoy (Sep: 5.9% yoy). The larger-than-expected drop in inflation might encourage the Bangko Sentral ng Pilipinas (BSP) to hold its benchmark interest rate this month. If this happens, Bank Indonesia will probably try to keep its BI 7DRRR at 6% this month and next month. (Channel News Asia)

Domestic Economic News:  BI’s foreign exchange reserves fell to USD 133.1bn in October (Sep: USD 134.9bn), equivalent to 6.1 months of imports or 5.9 months of imports and short-term interest rate payments. Meanwhile, BI's liquid foreign exchange reserves fell to USD 120.2bn (Sep: USD 121.8bn), equivalent to 5.5 months of imports or 5.3 months of imports and short-term interest rate payments. We believe that BI will be more conservative in managing its foreign exchange reserves to maintain Rupiah stabilization.(Bank Indonesia)

Recommendation: FR0096, FR0097, FR0098, FR0100, FR0101.

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Samuel's Daily Macro and Fixed Income Report 8 November 2023 (Eng)
Samuel's Daily Macro and Fixed Income Report 8 November 2023 (Ind)

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Samuel's Daily Macro and Fixed Income Report 8 November 2023 (Eng)
Samuel's Daily Macro and Fixed Income Report 8 November 2023 (Ind)

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