Fixed Income Update 18 Jan 2024
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 18 January 2024
Reescalation of Risk Premium
Fed Member Waller's statement on the potential reluctance to lower the Fed Rate has influenced the median projection for the Fed Rate reduction to reach only 150 bps, as of 17 Jan '24 (Prev: 175 bps, as of 29 Dec ‘23) by the end of 2024. This has prompted a technical rebound in the yield of UST particularly in the W3 of Jan '24. Simultaneously, the increase in UST10Y yield, surpassing the UST2Y yield, has further narrowed the yield spread between UST10Y and UST2Y to only -16.14 bps as of 16 Jan '24. This comes after being at -53.03 bps on 12 Dec '23.
The inverted yield curve between SUN2Y and SUN10Y did not materialize in early 2024. This outcome has been influenced by the escalating geopolitical tensions in the Middle East since the beginning of Jan '24, contributing to a rise in global risk premia. As a result, the yield on SUN10Y has been impacted by this increase, concurrently driving an expansion in the yield spread between SUN10Y and UST10Y. Simultaneously, this situation has prompted investors to reposition towards SUN with shorter tenors.
Regards,
Fikri C Permana - KBVS Research Team