Market Brief
Indonesia’s local-currency government bond market weakened yesterday, with yields rising 1–9 bps across the curve. The 10-year benchmark yield increased by 5 bps to 6.25%. The Rupiah depreciated marginally to IDR16,664/USD from IDR16,657/USD previously. Secondary-market liquidity improved, as outright government bond turnover climbed to IDR26.0 trillion yesterday, from IDR22.2 trillion the day before, while corporate bond trading volume reached IDR4.5 trillion. In contrast to the weakness in the local currency bond market, Indonesia’s USD-denominated sovereign bonds advanced, with yields on the Indo-30, Indo-35, and Indo-54 declining to 4.23% (-2 bps), 4.87% (-2 bps), and 5.31% (-3 bps), respectively.
U.S. Treasuries traded largely sideways, exhibiting a modest twist-flattening bias. Long-end tenors outperformed, supported by an aggressive rally in UK gilts after the UK Debt Management Office unexpectedly reduced long-end issuance. Investors maintained close attention on the Federal Reserve’s December policy outlook, with Fed funds futures pricing an 84.9% probability of a 25-bps rate cut despite a mixed macro backdrop. The latest Beige Book underscored divergent views among policymakers regarding the scope for further easing, in a context of limited incremental economic data. Labor market indicators remained firm, as initial jobless claims fell to 216k— the lowest level since mid-April and below the consensus estimate of 225k—signaling subdued layoff activity. However, softer activity data, including a sharp decline in the Chicago Business Barometer to 36.3 in November and a moderation in durable goods orders growth to 0.5% in September from 3.0% previously, tempered optimism. Auction dynamics added to the flattening bias, with the USD44 billion 7-year notes issuance clearing at a 2.46x bid-to-cover ratio, in line with the previous auction but slightly below the recent six-auction average of 2.56x. Political considerations provided an additional layer to rate expectations as markets awaited President Trump’s anticipated nomination of the next Fed Chair, with Kevin Hassett seen as the leading candidate given his alignment with the administration’s preference for lower policy rates. With U.S. financial markets closed for Thanksgiving on Thursday, trading activity remained constrained, though duration continued to attract cautious bids amid rising conviction of a December rate cut. The 2-year, 5-year, 10-year, and 30-year Treasury yields closed at 3.48% (+2 bps), 3.57% (+1 bps), 3.99% (-1 bps), and 4.64% (-1 bps), respectively. Most European bond markets strengthened, with 10-year yields in the UK and France declining to 4.42% (-7 bps) and 3.40% (-1 bps), while Germany’s 10-year yield was broadly stable at 2.67%.
Indonesia’s bond market is expected to maintain a broadly sideways trajectory in the near term, weighed by mixed external signals. Market participants are likely to adopt a wait-and-see stance ahead of key U.S. economic data releases that may offer clearer guidance on the Federal Reserve’s policy path. Domestically, investors will also monitor upcoming indicators, including November CPI inflation and the October trade balance, both scheduled for release early next week.
Fixed Income News
• Fitch Ratings Indonesia affirmed PT Bank UOB Indonesia’s (UOBI) National Long-Term Rating at ‘AAA(idn)’ with a Stable Outlook.
• PEFINDO has affirmed its idAAA and idAAA(sy) ratings on the outstanding conventional bond and sukuk issued by PT Indosat Tbk (ISAT) that are approaching maturity.
Best Regards,
Bahana Sekuritas Fixed Income Research
