Fixed Income

Fixed Income Update 01 Feb 2024

Fikri C. Permana 01 February 2024

Thursday, 1 February 2024

Digesting the Outcomes of the First FOMC Meeting In 2024

The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing for the 1Q (Jan to Mar) ‘24 and 2Q (Apr to Jun) ‘24 . During the 1Q24, Treasury expects to borrow USD760 bn in privately-held net marketable debt, assuming an end-of-March cash balance of USD750 bn. The borrowing estimate is USD55 bn lower than announced in Oct ‘23, largely due to projections of higher net fiscal flows and a higher beginning of quarter cash balance. During the 2Q24, Treasury expects to borrow USD202 bn in privately-held net marketable debt, assuming an end-of-June cash balance of USD750 bn.

The previous announcement from the US Treasury has driven increased net fiscal flows and a higher cash balance. Simultaneously, the US GDP data for 4Q23, which registered a 3.30% YoY growth, further strengthened these expectations. As a result, since Monday (29 Jan ’24), there has been a decline in the yield of UST10Y by -14.43 bps, following an increase of +33.19 bps from the beginning of the year until 25 Jan ‘24.

The same conditions also influence the movement of SUN yields. This is evident from the cessation of the increase in SUN10Y yields that occurred from the beginning of the year until 25 ‘24, amounting to +18.6 bps, with a decline of -4.3 bps in the last three days. Unfortunately, the downward trend in SUN yields is somewhat impeded by the depreciation of the Rupiah against the USD, triggered by sentiment regarding the potential resignation of the Finance Minister and escalating domestic political tensions.

Amidst the Federal Reserve's decision to maintain the Federal Reserve Rate within the range of 5.25%-5.50%, and Chair Powell's indication that it would be suitable to commence rate reductions at some point this year, with decisions contingent on evolving economic conditions and unlikely to include a cut in March, UST yields exhibited a decline last night. This underscores the Federal Reserve and market's high dependency on economic data moving forward.


KBVS Research Team