Fixed Income Update 27 Nov 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 27 November 2025
Dovish Fed Opens Policy Space for Bank Indonesia
A coordinated dovish communication shift from John Williams, Mary Daly, and Christopher Waller has decisively reversed last week’s “pause” narrative at the Federal Reserve. Markets are now aggressively pricing in a 25 bps rate cut in December, with implied probability surging to 82.9%, from nonly 30% last week. The policy pivot was reinforced by the first wave of post-shutdown U.S. economic data, which revealed clear signs of weakening demand. An unexpected contraction in retail sales and a sharp drop in consumer confidence confirmed that economic momentum is deteriorating. This has strengthened the prevailing “bad news is good news” dynamic for financial markets, effectively forcing the Fed toward a preemptive easing move.
The reassessment triggered a broad repricing across global asset classes. U.S. Treasury yields declined sharply as investors adjusted for lower policy rates, while the U.S. dollar weakened materially. Risk assets benefited as investors unwound defensive positions, leading to an effective loosening of global financial conditions ahead of the December 10 policy meeting. Lower U.S. rates are structurally supportive for global equities, emerging-market assets, gold, and high-yield bonds, while reducing pressure on global funding costs and capital flows to riskier jurisdictions.
The Indonesian rupiah has remained relatively stable despite global volatility, supported by Bank Indonesia’s firm commitment to currency stability through a steady policy rate and targeted FX interventions. These measures have helped contain excessive fluctuations and anchor market expectations. The World Bank also continues to view the rupiah as among the more resilient emerging-market currencies, underpinned by Indonesia’s solid macroeconomic fundamentals.
Although the currency has traded above Rp16,500, its movement remains orderly, reflecting strong policy credibility and macro stability. Even amid ongoing capital outflows from emerging markets, Indonesia’s prudent monetary management continues to provide an effective buffer.
Regards,
KBVS Research Team