Full Report:
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Market Brief
Indonesia’s local-currency government bonds came under pressure, with yields rising by 3–13 bps across the curve, while the benchmark 10-year yield increased by 7 bps to 6.88%. Secondary market activity eased, as outright transaction volume in government securities decreased to IDR13.8 trillion from IDR20.3 trillion in the previous session. Meanwhile, corporate bond trading volume stood at IDR7.9 trillion. On the currency front, the Rupiah appreciated modestly to IDR18,036/USD from IDR18,049/USD previously. Indonesia’s USD-denominated sovereign bonds also weakened, with yields on INDO-31, INDO-34, and INDO-54 increasing to 4.79% (+4 bps), 5.24% (+6 bps), and 5.71% (+5 bps), respectively.
U.S. Treasury yields moved sharply higher across the curve, with front-end rates leading the sell-off after a stronger-than-expected labor market report reinforced expectations that the Federal Reserve will keep monetary policy restrictive for longer. By the close, the 2-year, 5-year, 10-year, and 30-year Treasury yields rose to 4.15% (+10 bps), 4.27% (+8 bps), 4.53% (+5 bps), and 5.00% (+2 bps), respectively, while European sovereign yields were little changed, with 10-year yields closing at 3.04% (+2 bps) in Germany, 4.90% (unchanged) in the UK, and 3.69% (+2 bps) in France. Treasuries came under heavy pressure following a robust May nonfarm payrolls report, which showed that the U.S. economy added 172k jobs, significantly above the consensus estimate of 96k jobs, while payrolls for March and April were revised higher by a combined 93k jobs. The unemployment rate remained unchanged at 4.3%, average hourly earnings increased by 0.3% MoM, and labor force participation held steady at 61.8%, collectively reinforcing the view that labor market conditions remain resilient despite expectations for a gradual slowdown. The stronger employment data prompted investors to further scale back expectations for policy easing and increase the perceived probability of another Fed rate hike later this year. Market participants interpreted the report as evidence that economic activity remains sufficiently firm to withstand restrictive monetary conditions, particularly with inflation still running above the Fed’s target. Additional data also pointed to resilient consumer activity. Consumer credit increased by USD20.7 billion in April, exceeding the consensus estimate of USD17.5 billion and suggesting that households continue to rely on borrowing to support spending.
Pressure on Indonesia’s government bond market may persist in the near term following the sharp rise in U.S. Treasury yields, as stronger-than-expected U.S. labor market data reinforced expectations of a higher-for-longer Fed stance. Going forward, market sentiment is likely to remain closely tied to U.S. rate expectations and global yield movements, with limited room for a meaningful rally in domestic bonds unless external conditions improve.
Fixed Income News
• PEFINDO has assigned its idA rating with stable outlook to PT Perkebunan Nusantara III (PTPN III).
• PEFINDO has assigned a financial strength rating of idAA+ with a stable outlook to PT Asuransi Umum BCA (BCA Insurance).
