Fixed Income Update 14 Aug 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 14 August 2025
Fed Faces Service Inflation Hurdles, Domestic Bonds Gain
The persistent decline in service-sector inflation remains the primary challenge for the Federal Reserve in bringing overall inflation down to its optimal target of 2%. At the same time, the intensifying deflationary pressures in the energy sector are viewed as a positive factor in containing further increases in service inflation. However, they also raise concerns over weakening energy demand from the manufacturing sector. As such, U.S. manufacturing labor market data will be key to assessing the sector’s health, output developments, and broader economic growth—factors that the Fed closely monitors when determining its Fed Funds Rate policy. In line with this, several Fed officials have reiterated the need for clearer data before making any decisions on future rate cuts.
Domestically, the IDR 162 trillion in incoming bids at the Tuesday (August 12) auction marked a positive momentum, reflecting optimistic expectations for the domestic fixed-income market outlook. This aligns with market hopes for a Fed rate cut in the upcoming FOMC meeting and a BI Rate reduction in the next Board of Governors Meeting.
Regards,
KBVS Research Team