Fixed Income Update 02 Oct 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 2 October 2025
Global Uncertainty from U.S. Fiscal Standoff, with Indonesia Anchored by Trade Surplus
The U.S. government entered its 23rd shutdown on October 1, 2025, after the Senate failed to resolve disputes over Medicaid and broader budget priorities. The shutdown has led to the suspension of non-essential services, delayed federal employee pay, and a halt to key economic data releases, heightening uncertainty for businesses and policymakers. Although financial markets have so far remained relatively stable, a prolonged standoff could undermine investor confidence, pressure the dollar, and weigh on U.S. Treasuries.
At the same time, the Federal Reserve is widely expected to deliver a 25 bps rate cut in October, marking the second step in its easing cycle amid slowing economic growth, a cooling labor market, and rising risks from the shutdown. Supporting this view, the S&P Global Manufacturing PMI has eased to 50.40 (Prev: 51.50), signaling softer activity.
In Indonesia, the trade surplus climbed to USD 5.49 bn in August 2025—the largest since October 2022—extending its 64-month streak. Stronger export performance (+5.78% YoY) combined with weaker imports (-6.56% YoY) should bolster FX reserves and support rupiah stability, aided by higher USD deposit rates effective September 29.
Meanwhile, inflation quickened to 2.65% YoY in September, driven by volatile food prices, particularly red chili and chicken meat, alongside core pressures from gold and education costs. Looking ahead, rupiah weakness, liquidity injections, and higher civil servant salaries present upside risks to October inflation, though food assistance programs are expected to provide partial relief. A weaker rupiah may also enhance the competitiveness of manufactured exports, even as import demand faces pressure from higher costs.
Regards,
KBVS Research Team