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21 August 2023

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Global macroeconomic pressure leads to INDOGB 10Y yield correction (21/08)

Global macroeconomic pressure leads to INDOGB 10Y yield correction

Pressure on the domestic bond market grew stronger following economic developments in China and the United States. Market players predict that China's 2023 GDP growth will be lower than 5% due to repeated blows from economic slowdown in July and property sector debt crisis, which has resurfaced following the Country Garden case and Evergrande's bankruptcy filing. At the same time, the market is increasingly worried about the possibility of the Fed delaying rate cuts until 2Q24 due to stronger soft landing signals. As a result, the yields on all INDOGB tenors were corrected (10Y: 7 bps to 6.51%; 5Y: 8 bps to 6.22%; and 2Y: 3 bps to 6.12%) on Friday (8/18), while the yields on all INDON instruments went up  (10Y: 12 bps to 5.27%; 5Y: 10 bps to 5.24%; and 2Y: 5 bps to 5.41%). We expect INDOGB 10Y’s correction to continue towards the 6.5-6.6% range; however, the strength of the corrective pressure will decrease as the 10Y yield gets closer to its support level at 6.6%. Depreciation pressure on the Rupiah has started to ease, and we expect Rupiah to consolidate at IDR 15,250-15,350 per USD.

Fixed Income News: Evergrande files for Chp. 15 bankruptcy protection in New York. This action was taken by Evergrande to protect its debt restructuring process in China from its creditors in the United States, and to prepare for the maturity of 1/3 of Evergrande's bond debt of USD 28.1bn in 2025. However, the wrong timing has worsened global investors’ sentiment towards emerging bond markets. In our opinion, the negative sentiment from this case will still weigh on the Indonesian bond market this week. (Marketwatch)

Global Economic News: Japan's CPI inflation remained at 3.3% yoy in July (Jun: 3.3% yoy; Cons: 2.5% yoy). Meanwhile, Japan's core CPI inflation slipped to 3.1% yoy, in line with consensus (Jun: 3.3% yoy; Cons: 3.1% yoy). We believe that the Bank of Japan (BOJ) will use this opportunity to maintain its negative interest rate policy, as well as the JGB 10Y yield control range of ±1% through the end of this year, which should help keep the supply of investments from Japan to Asia. (Nikkei)

Domestic Economic News: Demand for corporate financing fell in July. This was reflected in the results of Bank Indonesia’s survey, which showed a slight drop in its weighted net balance to 17.6% (Jun: 17.8%). As a result, new loan disbursements fell sharply, as reflected in its weighted net balance of 45.1% (Jun: 81.7%). Even so, domestic banks are optimistic that new loan disbursements will improve in August, with an increase in the weighted net balance to 85.3%. (Bank Indonesia)

Recommendation: FR0037, FR0040, FR0056, FR0084, FR0086, FR0090, PBS032, PBS036.

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