Fixed Income Update 30 Nov 2023
WEEKLY FIXED INCOME UPDATE
Thursday, 30 November 2023
The Momentum of Yield Curve Normalization
The anticipated recession concerns linked to an inverted yield curve between UST2Y and UST10Y, which began on 1 Apr '22, seem unlikely to materialize this year. Conversely, the recent shift towards a less-hawkish (trending dovish) stance by officials at The Fed, exemplified by individuals like Waller and Golsbee, alongside certain real sector data and increasing investor appetite in the UST primary market, are noteworthy.
While Indonesia has not witnessed an inverted yield curve between the 2Y and 10Y tenors. Factors such as burden sharing, operational twists, and changes in investor appetite have fashioned the SUN yield curve into a flat (tending towards humped) shape, notably within the 2-year to 15-year tenors. Apart from global conditions, several aspects are poised to reinforce these projections:
• The necessity for an increase in the BI7DRR remains relatively restrained, driven notably by subdued inflationary pressures and a stabilizing Rupiah.
• Favorable conditions in the execution of APBN and the probability of achieving a fiscal deficit lower than the 2023 APBN target.
Consequently, we anticipate the possibility of UST's and SUN's yield curve normalization to commence in the year 2024.
Regards,
Fikri C Permana - KBVS Research Team