Fixed Income Update 31 Jul 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 30 July 2025
Amid Tariffs, Interest Rates, and the Decline in Domestic FDI
The United States and European Union have reached a trade agreement worth USD1.35 tn, covering tariff reductions, digital trade, and regulatory alignment. The deal strengthens transatlantic economic ties while maintaining U.S. tariffs on strategic sectors such as automotive, metals, and pharmaceuticals. Meanwhile, U.S.-China trade talks concluded without an extension of the tariff truce, which is set to expire on 12 Aug. Key unresolved issues include reforms on rare earths and state-owned enterprises. The decision to resume tariffs on USD370 bn in Chinese goods now rests with President Trump.
The Federal Reserve kept its benchmark interest rate steady at 4.25%–4.50%, offering no clear guidance on a potential rate cut in Sep ‘25. However, pressure from President Trump on Fed Chair Jerome Powell has intensified, amid growing internal divisions within the central bank.
On the domestic front, Indonesia’s foreign direct investment (FDI)—excluding the financial and oil & gas sectors—fell by -6.95% YoY to IDR202.2 tn (USD12.3 bn) in 2Q25. This marks the first contraction since 3Q21 and the steepest drop in five years, driven by global trade uncertainty and weakening domestic purchasing power. Key sectors attracting FDI included base metals, mining, services, transportation, warehousing, and telecommunications. The top sources of FDI were Singapore (USD4.2 bn), Hong Kong (USD2.3 bn), and China (USD1.8 bn).Despite the FDI decline, total investment—combining both foreign and domestic capital—rose by 11.5% YoY to IDR477.7 tn, creating 665,764 new jobs.
Regards,
KBVS Research Team