Narrow Spread

The fixed-income market was stable in July 2023 despite the Fed raising another 25 bps benchmark rate to 5.50%. The Fed raised the Fed rate on the back of a resilient job market and inflation is still higher than overall inflation. The market sees the consistency of monetary policy is needed to affirm the certainty in fighting against inflation. The narrative of recession has faded and been replaced by soft-landing economic conditions. Bank Indonesia did not hike the benchmark rate on the sight of supporting domestic economic growth. BI uses the twist operation in maintaining exchange by selling short-term SBN in the secondary market to increase the attractiveness of SBN yield for foreign portfolio investment inflows.

Bank loan growth has declined to 7.76% in June 2023 from 9,39% yoy previous month. Amid loose supply-side conditions due to ample liquidity, high loan disbursement plans and loose lending standards in the banking industry, the corporate sector is accelerating loan repayments while maintaining a wait-and-see stance in increasing future investment plans.

IndoGb yield was maintained well at the range of 6.2% – 6.3% in July 2023. We see local ample liquidity is the reason the yield stayed stable. Hence, we are convinced that our 2023 IndoGb yield target can be revised to a range of 6.0% -6.5% from the previous yield target range of 6.5% – 7.0%.