Fixed Income Update 15 Aug 2024
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 15 August 2024
Bye Inflation Risk,
Welcome Fed Rate Cuts!
The recession risk indicated by the rising Sahm Rule Index appears to be diminishing this week. This is driven by weakening inflation risk in US (both PPI and CPI), then increasing expectations for a more aggressive Federal Reserve rate cut, with expectations for a 100 bps reduction by the end of 2024. Additionally, the Reserve Bank of New Zealand (RBNZ) delivers the first cut rates in over 4 years by 25 bps to 5.25% on Aug 14, ‘24, despite inflation in the respective country still at 3.3% YoY as of Jun ‘24.
This environment has put pressure on the DXY, which has reached its lowest point since Jan 15, ‘24. At the same time, this situation has led to an appreciation of the Rupiah, a decline in SUN yields, and increased capital inflows into domestic portfolios. Nevertheless, concerns about the backloading of SBN issuance should be noted, as it may potentially dampen the bullish sentiment in the fixed income market towards the end of the year.
Regards,
Fikri C Permana - KBVS Research