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Fed Chair Jerome Powell sent a fairly strong dovish signal during his speech yesterday (11/1), which led to buying action in the US treasury market; the 10Y and 2Y UST yields fell (-20) and (-14) bps to 4.73% and 4.94%, and the 10Y Bund yield dropped (-4) bps to 2.76%. We consider this as a strong signal of the transition of the inverted bear steepening trend to inverted bull steepening, which will certainly have a positive impact on the SBN market, which is currently suffering from a "nearing flat" yield curve, with the yield spread between 10Y Vs. 2Y INDOGB falling to 16 bps. Although this condition can be interpreted as a signal to start switching positions from a defensive strategy to long (buy) 10Y and 15Y INDOGB instruments, we advise investors to remain cautious, given the possibility of BI raising its 7DRRR in November, which is now more likely than ever following the increase in the SRBI 12M discount rate during yesterday's auction (11/1) to 7.02% (see Fixed Income News). We project the 10Y INDOGB yield to decline to 6.95-7.05% today, supported by optimism in the US treasury market. However, Rupiah might depreciate toward IDR 15,950-16,050 per USD following the strengthening of the USD index (+0.2% to 106.9).
Fixed Income News: Ministry of Finance issued IDR 4tn worth of SRBIs during the November 1 auction (10/27: IDR 3tn). The increase in issuance value was mainly driven by the growth in demand to IDR 6.25tn (10/27: IDR 5.63tn). To boost public interest in SRBI, Bank Indonesia raised the 12M discount rate to 7.02% (10/27: 6.97%), which can be considered as a signal for another BI 7DRRR hike in November.(Bank Indonesia)
Global Economic News: China's Caixin manufacturing PMI fell to 49.5 in October (Sep: 50.6; Cons: 50.8). The data confirmed the slowdown in economic activity indicated by the Chinese government's official PMI data released the day before. The situation might encourage the Chinese government to be more aggressive in providing the previously announced stimulus policy through the release of new bonds worth RMB 1tn, boosting the Chinese government's budget deficit to 3.8% (Prev: 3%). (Caixin)
Domestic Economic News: Manufacturing PMI fell to 51.5 in October (Sep: 52.3). The slowdown was mainly caused by the decline in domestic and foreign demand. As a result, manufacturers began to make adjustments to labor recruitment and utilization. To maintain profit margins, manufacturers raised the selling prices of their products.(S&P)
Recommendation: FR0096, FR0097, FR0098, FR0100.
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