Fixed Income Update 28 Aug 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 28 August 2025
The Imperative of Adopting A Balanced Policy
The positive release of U.S. economic data early last week—particularly the S&P Global Manufacturing PMI and both new and existing home sales—drove an uptick in U.S. government bond yields heading into the close of the week. However, Powell’s statement indicating a more balanced policy stance from the Federal Reserve boosted expectations of an imminent Fed rate cut. This was further compounded by Trump’s call for the immediate resignation of Lisa Cook following allegations of mortgage fraud leveled against her by the FHFA president. Such developments have raised concerns over the Fed’s independence, while at the same time underscoring Trump’s intent to push for a faster rate cut.
Domestically, the impact of Bank Indonesia’s rate cut is becoming more evident, with a decline in domestic funding costs—both for government bonds (SUN) and corporate bonds, particularly at shorter tenors—further supported by rising expectations of a Fed rate cut. Unfortunately, this easing in funding costs has also brought attention to the relative decline in returns on government securities and other asset classes in Indonesia. As a result, the Rupiah continues to face pressure, moving in an inverse and somewhat anomalous pattern compared to the U.S. Dollar Index (DXY).
Regards,
KBVS Research Team