Fixed Income Update 27 Jun 2024
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 27 May 2024
Government Communication Has Improved, And The Yield on SUN Has Started to Decline
The data releases that influenced yield movements in the week of Jun 20-26th, ‘24 are as follows:
• Weekly initial jobless claims for the week ending Jun 15th, ‘24, decreased by 5K to 238K (Cons: 235K, Prev: 243K).
• The S&P Global US Manufacturing PMI in Jun ‘24 rose to a three-month high of 51.7 (Cons 51.0, Prev: 51.3).
• US CB Consumer Confidence in Jun ’24 stable at 100.4 (Cons: 100.0, Prev: 101.3).
• Existing Home Sales in the US for May ‘24 declined -0.7% MoM (prev: -1.9% MoM) to a seasonally adjusted annualized rate of 4.11 mn units (Cons: 4.08 mn units, Prev: 4.14 mn units).
The BI Rate has been maintained at 6.25% (Cons: 6.25%, KBVS: 6.25%, Prev: 6.25%). Simultaneously, BI also maintained the Deposit Facility rate at 5.50% and the Lending Facility rate at 7.00%.
We believe this decision aligns with
• the stable inflation rate, which stood at 2.84% YoY in May ‘24, and the target to keep inflation at 2.5% YoY (±1%) through the end of 2025, and
• the dovish stance adopted by the Fed and the Bank of England, given the increasing likelihood of interest rate cuts in these major economies by the end of 2024.
However, concerns about the Rupiah's depreciation trend over the past month, driven by capital outflows and worries about a rising fiscal deficit, have also garnered BI's attention. BI has refined its countercyclical macroprudential policy on the Bank's Foreign Exchange Funding Ratio (RPLN) to strengthen the management of the bank's foreign funding in line with economic needs, effective from Aug 1st, ‘24. We hope this will mitigate the risk of sudden capital reversals. Additionally, we encourage BI to further enhance effective intervention and communication to ensure the stability of the Rupiah. Therefore, we also hope for at least one 25 bps reduction in the BI Rate by the end of 2024.
Regards,
Fikri C Permana - KBVS Research