HIGHLIGHTS
- The 10-year US Treasury yield has risen sharply approaching 5% (4.93% on 20 October 2023). The spread between the 2-year and 10-year UST yields has decreased to -14bps, lower than average on June 2022 -15bps (when it hit negative values for the first time). According to our earlier forecast, the 10-year UST yield could rise to 5.00% in the near future, with a worst-case scenario of 5.30%. Last week, the 10-year SBN yield surged by 32 bps to 7.10% on October 20, 2023. At the same time, CDS rose by 5bps to 101bps, and foreign investors withdrew IDR 5.39 trillion. BI ownership increased by IDR 12.46 trillion during last week due to the intervention. As we wrote in the last report, if global sentiment continues to push the USDIDR and BI intervention in the SBN market was less, the SBN yield could potentially rise to 7.30%. The spread between UST 10-yr and SBN 10-yr rates was less than 200 basis points, but gradually rose again.
All in all, due to current conditions we are revising our 10-year SBN yield target at the level of 6.75% - 7.30% for the end of 2023 with the assumption of a 10-year UST yield at the level of 4.30% - 5.30%. Looking ahead to 2024, with the assumption of BI 7DRR rate cuts of 50-75bps and with the UST yield staying within the range of 3.50% - 4.50%, we expect the INDOGB yield to be in the range of 6.15% - 6.60%. We also expect the INDOGB and UST yields to move in the range of 200-240bps for the remainder of 2023, and slightly higher in the range of 210-265bps in 2024 vs an historical spread 388 bps for the last 3 years.
- Government bonds volume was IDR15.24 trillion, and it was dominated by short term (< 5 years). It was fell than the previous day transaction of IDR41.15 trillion. The volume lower than its YTD average of IDR46.56 trillion. while the outright transaction reached IDR13.69 trilion fell from the previous day's transaction which amount to IDR20.55 trilion.
- Meanwhile, the total volume of corporate bonds was recorded at IDR1777.32 billion, dominated by short term (< 5 years). The transaction volume declined compared to the previous day's volume of IDR3830.19 billion. The volume lower compared to this year's average of IDR1924.37 billion. Meanwhile, outright transaction recorded at IDR1777.32 billion fell from the previous day's transaction of IDR3829.19 billion.
- The Rupiah exchange rate against the US Dollar by 0.38% weakened to IDR15,875 from IDR15,815 while the JCI increased 0.04% from 6,846 to 6,849. Then Brent was up from 93.07 to 93.22 USD per barrel, while WTI Cushing Crude Oil Spot price was up from 88.32 to 89.37 USD per barrel.
GLOBAL UPDATES
- China LPR 1Y and 5Y are kept at 3.45% and 4.2% as the MLF was unchanged. LPR 1Y is used for corporate and household loans while LPR 5Y is a benchmark for mortgages. (Reuters)
- Japan inflation fall to 3.0% y-y in September 2023 (vs Aug's 3.2%), the lowest since Sep-22. Inflation ex-fresh food and energy rose 4.2% y-y, slightly fell from Aug's 4.3%. (Bloomberg)
- UK Retail Sales decline by 1% y-y in September 2023, worse than market expectation at -0.1% y-y. Retal Sales ex-fuel also decline by 1.2% y-y. (Bloomberg)
DOMESTIC UPDATES
- Direct Investment rose 21.6% y-y/7.0% q-q to IDR 374.4tn in 3Q23 with investment for down-streaming industry reached IDR 114.6tn. Investment was focused more in outside Java (IDR190.9tn vs Java:183.5tn). Metal Industry led with IDR56.9tn investment, followed by Mining (IDR 41.9tn) and Transportation, Storage, and Telecommunication (IDR 40.9tn). (Ministry of Investment)
- Foreign Direct Investment amounted to IDR 196.2tn or 52.5%, grew by 16.2% y-y/5.3% q-q.
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