Bouncing Yields

The global bond market was surprised in August 2023 as the US Treasury yield jumped above 4.2% driven by Fitch’s US rating downgrade, yield curve control adjustment by Bank of Japan and the Fed’s hawkish statement in the Jackson Hole symposium. Fitch downgraded the US rating due to the debt ceiling agreement in May 2023 that allowed the US government to conduct more bond issuance. Japan previously imposed yield curve control (0% – 0.5%) for quite some time to induce inflation to 2%. Lately, the Bank of Japan has tweaked the policy to allow 10-year Japanese government bond yield to rise above 0.5% up to 1% because inflation is stable above 3%. The last is from the Fed which made a hawkish statement due to the resilient labour market during the summer. These combinations have brought the US Treasury and IndoGb yield increase significantly in August 2023. The US Treasury yield reached 4.4% from 4% and the IndoGb 10-year yield rose to 6.7% from the previous 6.2%. However, the spike did not last for long as the US PCE inflation came up as low as expected and the US labour market cooled.

Bank Indonesia introduced SRBI (Sertifikat Rupiah Bank Indonesia) to attract foreign funds flow and optimize the government bond owned by BI. This is a sign that liquidity in the banking system for the time being is still ample because companies are likely more keen to use internal cash than bank loans. Therefore, we see the bond yield can be maintained stable for the next few months.