Fixed Income Update 18 Dec 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 18 December 2025
BoJ Rate Decision in Focus:
Shifting Global Yield Dynamics Amid Fed Caution and BI’s Stability Stance
U.S. labor market conditions are showing signs of gradual cooling rather than abrupt deterioration. The unemployment rate rose to a four-year high of 4.6% in November, while payroll growth remains volatile, reflecting uneven hiring momentum and rising uncertainty over the true strength of employment conditions amid recent data distortions.
Against this backdrop, the Federal Reserve continues to adopt a firmly data-dependent approach, carefully balancing emerging labor market risks against still-persistent inflationary pressures. Policymakers have pointed to the possibility that official employment data may be overstating underlying strength, alongside evidence of moderating wage growth. These factors support a cautious and measured easing trajectory, rather than an aggressive one, a stance that has been reflected in the decline of short-term U.S. Treasury yields.
At the same time, markets are closely awaiting the outcome of the Bank of Japan’s policy meeting and its potential implications for Japanese government bond yields. A further rise in the 10-year JGB yield to its highest level in 18 years could alter global capital flow dynamics going forward, particularly as yield differentials across major markets adjust.
Meanwhile, Bank Indonesia (BI) once again demonstrated its stability-over-growth policy orientation at the latest Board of Governors’ Meeting by keeping the BI Rate unchanged at 4.75%. As a result, the interest rate differential between the Federal Funds Rate and the BI Rate remains intact at around 100 basis points. This spread is expected to continue supporting the attractiveness of Indonesian portfolio assets, especially domestic fixed-income instruments.
Regards,
KBVS Research Team