Research & Stock Picks

Daily Report

18 October 2023

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Inverted bear steepening finally wins, UST 10Y yield nearing 5%

The strong domestic consumption growth in the US triggered another sell-off in global bond markets (see Global Economic News). The UST and Bund 10Y yields went up by 13 and 10 bps to 4.83% and 2.88%. Meanwhile, the S&P bond index for developed countries and EMBI for emerging markets fell by (-0.5)% and (-0.4)%. This might push the INDOGB 10Y yield to above 7%, especially with the fact that the yield spread between INDOGB Vs. UST 10Y is getting thinner, coming in at 193 bps. Also, INDON 10Y yield has gone up by 3 bps to 6.07%, close to its highest level over the last four years at 6.17%. In our opinion, the current macro environment might support the inverted bear steepening trend, which could push the UST 10Y yield to 5%, and the INDOGB 10Y yield to 7.2-7.3%. We believe that the 10Y INDOGB yield will go up to 6.8-6.9% today, while Rupiah might depreciate further to IDR 15,700-15,800 per USD. In our view, Rupiah will test its technical resistance at IDR 15,650-15,750 per USD, and If the resistance is broken, Rupiah might depreciate towards IDR 16,000 per USD. We reiterate our recommendation to take a defensive position on corporate bonds and short-term SUNs.

Fixed Income News: Ministry of Finance issued IDR 10.2tn worth of new SUN at yesterday’s auction (10/3: IDR 9.3tn). Despite the increase in new SUN issuance, the level of demand for SUN in the primary market fell to IDR 17tn (10/3: IDR 22.4tn), slightly lower than the lower limit of our projection (IDR 18-22tn). In our opinion, this was mainly caused by the fact that many foreign investors chose to wait for the INDOGB 10Y yield to rise to 7.2%. (DJPPR)

Global Economic News:  US retail sales growth fell slightly to 0.7% mom in September, worse than consensus (Aug: 0.8% mom; Cons: 0.3% mom). This fueled market concerns about the probability of another Fed rate hike in December. At the moment, 39% of analysts expect a 1X25 bps Fed rate hike to 5.75% in December (Prev: 30%). This situation has put the inverted bear steepening trend back on track. (Wall Street Journal)

Domestic Economic News BI’s banking survey indicated a higher demand for bank credit. BI’s survey showed that the weighted net balance of corporate financing and new loan distribution rose to 16.1% and 92.6% (Aug: 14.7% & 86.2%). We believe that one of the factors leading to higher demand for credit is BI's macroprudential policy, and bank credit growth in 2023 could stay at 7-9%. (Bank Indonesia)

Recommendation: FR0040, FR0044, FR0056, FR0077.

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Samuel's Daily Macro and Fixed Income Report 18 Oktober 2023 (Eng)
Samuel's Daily Macro and Fixed Income Report 18 Oktober 2023 (Ind)

Download PDF

Samuel's Daily Macro and Fixed Income Report 18 Oktober 2023 (Eng)
Samuel's Daily Macro and Fixed Income Report 18 Oktober 2023 (Ind)

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