Fixed Income Update 22 May 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 22 May 2025
DOWNGRADE ON US CREDIT RATING
Moody’s downgraded the U.S. sovereign credit rating from Aaa to Aa1, citing a decade-long rise in debt and interest burdens alongside the lack of meaningful fiscal reform. The agency projects deficits will widen from 6.4% of GDP in 2024 to 9% by 2035, with risks further amplified if the 2017 tax cuts are extended. While the downgrade may raise borrowing costs slightly, it could also pressure U.S. This has probability to make the treasury yields higher as investors demand greater risk premiums in the bond market.
In the domestic market, Bank Indonesia lowered its policy rate by 25 bps to 5.50% (prev: 5.75%), aiming to support growth amid easing external and internal pressures. The decision was partly driven by the de-escalation of U.S.–China trade tensions and the recent downgrade of the U.S. sovereign credit rating, which has increased the likelihood of Fed rate cuts in the second half of 2025. We expect Bank Indonesia (BI) to continue steering its monetary policy to maintain inflation within its target range due to the synergy in inflation control between Bank Indonesia and the Central and Regional Governments and stabilize the exchange rate in line with fundamentals by strengthening stabilization policy responses, including calibrated interventions in the offshore NDF market and the triple intervention strategy involving spot transactions, DNDFs, and SBN in the secondary market, while remaining attentive to opportunities for promoting economic growth in response to both global and domestic dynamics.
Regards,
KBVS Research Team