"Is the Bond Market Set to Boom or Bust in 2024? Find Out Now!"

 What are the prospects for the bond market amidst uncertainty over global interest rate policies for the remainder of 2024?Portfolio Manager, Fixed Income, PT Manulife Asset Management Indonesia (MAMI) , Laras Febriany, said that in the second quarter the bond market opened with changes in expectations. 

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Then, came high volatility and less conducive market sentiment.In April 2024, the bond market will weaken. The main trigger was inflation data from the United States (US) which was higher than expectations. 

US general inflation also increased relatively during January–March 2024. As a result, the Fed indicated that it needed more time to be more confident that domestic inflation was truly on a downward trend, before deciding to cut interest rates.

However, as time goes by, he sees that the market has made adjustments so that volatility appears to have subsided. Sentiment is starting to recover. Globally, the economy is projected to continue growing. 

The IMF predicts growth at the level of 3.2 percent (YoY) in 2024. The main catalyst is developing country regions, which are projected to grow 4.2 percent (YoY), followed by developed country regions, with growth of 1.7 percent (YoY).

"These figures are higher than the previous projections released last January, so fears of a recession no longer seem to be a scenario in the market," said Laras to  Fortune Indonesia , Monday (27/5).

In addition, the Fed Chair also stated that although interest rates will not be reduced as quickly as previously market expectations, the potential for further increases is now very small. 

So, that opens up more opportunities for interest rate cuts. Laras believes that this is understandable because the majority of US inflation components have decreased, except for the transportation and  shelter components .How will it impact Indonesia? "If US economic data and inflation subside, this condition could reduce the pressure on the strengthening of the US dollar so that Bank Indonesia (BI) does not need to raise interest rates," said Laras.

According to him, apart from pressure on the rupiah, MAMI does not see any other factors that could trigger BI to increase interest rates, especially because domestic inflation is still maintained.

Currently, the market is still projecting that there is a chance of cutting the Fed Funds Rate one to two times. So, MAMI predicts that the BI Rate could be at the level of 5.75 percent to 6.25 percent by the end of 2024.Regarding the increase in interest rates to 6.25 percent last April, MAMI saw that the market appreciated this. 

What are the indicators? The rupiah exchange rate has improved and is stable at around IDR 16,000 per dollar, the yield on 10Y SBN has fallen from its peak at 7.25 percent to the current level—which is below 7 percent."As well as foreign investors who will start to return to the bond market in May 2024," said Laras again.

Furthermore, MAMI assesses that Indonesia's economic fundamentals are still strong, and the supporting catalysts and financial market potential are still very sufficient. 

For this reason, medium to long term opportunities can be the focus of bond investors.However, volatility due to the Fed's interest rate uncertainty remains to be seen.

"Treat short-term volatility as an opportunity that may not necessarily come back, especially with the view that interest rate cuts may still occur," said Laras.

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