Fixed Income Update 05 Mar 2026
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 5 March 2026
Delayed Fed Easing and Rating Developments Shape Indonesia’s Market Outlook
Operation Epic Fury has intensified geopolitical tensions in the Middle East, disrupting energy markets and driving Brent crude above USD80 per barrel. This has heightened global inflation risks and reinforced risk-off sentiment across financial markets. Looking ahead, a de-escalation would likely limit the macroeconomic impact. However, a further deterioration could exacerbate risk aversion, amplify commodity price volatility, elevate inflationary pressures, and increase instability in global financial markets.
At the same time, markets have sharply repriced interest rate expectations, reinforcing a “higher for longer” stance. Current Fed probabilities indicate a 97.4% likelihood of a pause in Mar ‘26, with the first rate cut—potentially to 3.25%–3.50%—most likely in Jul ‘26 (43.7%).
Amid rising geopolitical uncertainty, our sensitivity analysis (ceteris paribus) suggests significant fiscal risks. If 1) The SUN10Y yield rises toward 7.8%, the fiscal deficit could widen by approximately IDR17.1 tn (0.07% of GDP), 2) A rupiah depreciation to IDR17,200 per USD may add IDR4.0 tn (0.02% of GDP), dan 3) While an increase in the Indonesian Crude Price (ICP) to USD95 per barrel could expand the deficit by around IDR170.0 tn (0.71% of GDP)
In this context, concerns from rating agencies such as Moody’s, Fitch, and the recent cautionary signals from S&P appear well justified. Against this backdrop, we expect further global portfolio reallocation. The prevailing risk-off environment is likely to support selective flows into global bond markets, particularly in countries less directly affected by the conflict and in shorter-duration instruments. On the equity side, pressures on the IHSG are expected to persist. Nevertheless, selected energy-related commodities may benefit from elevated prices, as well as export-oriented sectors with exposure to non-affected economies.
Regards,
Fikri C Permana, Khairunnisa N Syahfiraputri - KBVS Research Team