Fixed Income Update 25 Sep 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 25 September 2025
Pro-Growth, But Fiscal Risks Persist
The Fed has initiated its easing cycle with a 25-bps rate cut, reflecting signs of a cooling labor market. Markets now focus on the October FOMC meeting, where futures suggest another cut. Yet, heightened geopolitical risks—including Palestine’s recognition at the UN—and the threat of a U.S. government shutdown call for caution, as both may weigh on Treasury yields and the DXY.
Meanwhile, the IEU-CEPA promises significant gains, eliminating over 98% of tariffs and potentially tripling Indonesia’s exports to the EU within five years, while saving EU exporters EUR600 mn annually. The agreement also removes key trade barriers, fostering investment in strategic sectors such as EVs and sustainable industries. Domestically, fiscal concerns persist as the widening deficit and 2026 budget assumptions raise stability risks, despite reduced crowding-out pressures from government liquidity injections into banks. On the other hand, pro-cyclical stimulus through food aid programs—such as rice and cooking oil—aims to support household purchasing power.
Regards,
KBVS Research Team