Bond Market Commentary : November 2021

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Bond Market Commentary : November 2021

Supportive Condition


The Fed’s tapering has begun and the US 10-year Treasury yield hovered between 1.4%-1.6% in November. We see the reappointment of Jerome Powell as the Fed governor is an indication that monetary policy will likely remain the same as it’s communicated recently. The Fed is still seeing risk in the economy as the virus variant keep evolving and threatening economic recovery. In the released minutes of FOMC meeting, the Fed is ready to raise the interest rate if inflation running hot. However, we see the oil has declined as the US government releases their oil reserve to normalize the oil price pressure while coal price dropped after the Chinese government regulated coal price control.  Additionally, logistic cost through shipping cost has stabilized more or less. We see the global inflation pressure can ease at end of the first quarter of 2022.


Aside from inflation, the other important point is employment. US economic data on jobless claims and unemployment rate keep improving, leaving only the non-farm payroll still unstable. We see the new virus variant Omicron can become a new threat but until now it is generally quite manageable. Therefore, tightening monetary policy should be carefully executed.


Meanwhile, in the domestic market, we see the government 10-year bond yield quite stable at 6.00% – 6.30% which is within the range of what we expect until the end of the year. The mid to longer benchmark bond yields have declined, therefore we think the non-benchmark bond yields will likely decline too. We don’t see any rapid reversal of yield shift due to the supportive local investors. We still recommend investors to own fixed income funds because the yields are still offered at a higher yield than the bank deposit rate with measured risk, especially in the low duration funds.


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Written by

Willy Gunawan

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