Fixed Income Update 04 Dec 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 4 December 2025
Diverging Global Monetary Paths: Fed Easing Bets Rise as BoJ Signals Tightening
Markets have now priced in a December rate cut with near-certainty, with the implied probability reaching 89.1%. This decisive shift reflects intensified dovish guidance from policymakers and pro-growth expectations surrounding the likely nomination of Kevin Hassett. As investors unwind “higher-for-longer” positions, the DXY continues to retreat, while the U.S. yield curve has steepened as front-end Treasury yields fall more rapidly than the long end ahead of the December 10 meeting of the Federal Reserve.
Global risks have risen amid renewed tensions in East Asia. China cancelled over 1,900 flights to Japan and reinstated a full seafood import ban, disrupting tourism and regional trade flows. At the same time, the Bank of Japan has signaled a possible December rate hike, with Governor Kazuo Ueda citing improving wages, sticky inflation, and tight labor conditions. The immediate impact has been a stronger yen and rising JGB yields, while globally this raises the risk of yen carry trade unwinding, tighter liquidity, and renewed pressure on risk assets.
Indonesia’s inflation moderated in Nov ‘25 to 0.17% MoM and 2.72% YoY, although core inflation remains influenced by Rupiah weakness and manufacturing PMI dynamics. A potential 25 bps Fed cut could help stabilize the currency and ease imported inflation, preserving policy space for Bank Indonesia to consider a rate cut if price pressures remain contained. Indonesia’s trade surplus narrowed sharply to USD2.39 bn in Oct ‘25, the weakest since April, as exports contracted for the first time in 19 months amid broad-based commodity declines, while imports rebounded strongly, led by energy.
Regards,
KBVS Research Team