Full Report:
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Market Brief
Indonesia’s local-currency government bond market extended its stronger tone yesterday, with yields declining by 1–6 bps across most tenors. The benchmark 10-year yield edged lower by 1 bp to 7.15%. Secondary market activity improved, as outright transaction volume in government securities rose to IDR18.3 trillion from IDR17.3 trillion in the previous session. Corporate bond trading volume remained sizeable at IDR9.1 trillion. On the currency front, the Rupiah strengthened to IDR17,851/USD from IDR17,922/USD previously. Meanwhile, Indonesia’s USD-denominated sovereign bonds traded broadly range-bound, with yields on INDO-31, INDO-34, and INDO-54 closing at 4.80% (+1 bp), 5.10% (unchanged), and 5.64% (-1 bp), respectively.
U.S. Treasury yields moved within a narrow range overnight, as investors stayed on the sidelines ahead of key labor market releases while weighing easing geopolitical risks against still-resilient U.S. economic momentum. The 2Y, 5Y, 10Y, and 30Y yields closed at 4.10% (+1 bp), 4.14% (+1 bp), 4.38% (+1 bp), and 4.86% (-1 bp), respectively. European sovereign bond yields were also broadly stable, with 10-year yields ending at 2.86% (+1 bp) in Germany, 4.72% (-1 bp) in the UK, and 3.64% (+1 bp) in France. Price action in Treasuries remained muted as markets awaited this week’s key U.S. labor market data, particularly the JOLTS job openings report and June nonfarm payrolls, which should provide fresh signals on the Fed’s policy trajectory. Although energy prices remained well below their recent peaks, helping to temper inflation concerns, investors appeared reluctant to add duration exposure ahead of the data. Risk sentiment was also supported by signs of de-escalation in the Middle East, after the U.S. and Iran agreed to temporarily pause hostilities and allow commercial shipping to resume through the Strait of Hormuz, reducing concerns over prolonged supply disruptions. Nevertheless, oil prices partially rebounded, with WTI crude rising 1.9% to USD70.5/bbl and Brent gaining 1.3% to USD72.9/bbl. Despite the more constructive geopolitical backdrop, Treasury yields remained above recent lows as markets continued to price in the risk that the Fed may maintain a restrictive policy stance for longer, particularly following recent hawkish guidance under Chair Kevin Warsh. Looking ahead, investor focus will shift to the upcoming U.S. labor market releases, which are likely to be a key driver of expectations for the Fed’s next policy move. While lower energy prices have eased near-term inflation risks, evidence of a still-tight labor market could reinforce the higher-for-longer rate narrative and limit the scope for a sustained Treasury rally.
Indonesia’s bond market is likely to remain broadly stable in the near term, supported by easing geopolitical tensions, a firmer Rupiah, and relatively steady U.S. Treasury yields. However, investors may continue to adopt a cautious stance ahead of the key U.S. labor market data, given its potential implications for the Fed’s policy outlook and global duration appetite. Domestically, attention will also turn to today’s government sukuk auction, where the strength of incoming bids will offer a fresh gauge of investor sentiment following the recent stabilization in yields.
Fixed Income News
• The Government of Indonesia is set to conduct a sukuk auction today with an indicative issuance target of IDR10.0 trillion.
• PEFINDO has assigned an idAAA rating with a stable outlook for PT Pupuk Sriwidjaja Palembang (Pusri).
