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Tapering is not projected to have a significant impact on the SBN market

Tapering is not projected to have a significant impact on the SBN market. After waiting for several weeks, market participants finally got a definite answer regarding the Federal Reserve's (The Fed) stance regarding tapering. Certainty is obtained after the Fed announced that tapering will be officially carried out starting this month after the FOMC (Federal Open Market Committee) meeting in the middle of this week.



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This is the first monetary policy tightening by the Fed since the Covid-19 pandemic hit. In addition to continuing monetary stimulus, the United States (US) central bank also cut its benchmark interest rate to almost 0%, and bought up securities worth US$ 120 billion per month.

However, with the US economy recovering, the Fed feels that the 'dose' of the stimulus can be reduced. As a start, asset purchases were cut by US$ 15 billion to US$ 105 billion.

"Considering the substantial progress made, the Committee decided to begin reducing asset purchases by $10 billion for government bonds and $5 billion for mortgage-backed securities," the Fed said in a statement.

As a result, starting this month, the committee decided to purchase US$ 70 billion in government bonds and US$ 35 billion in mortgage-backed securities. Meanwhile, in December, the purchase value of government bonds will be US$ 60 billion, while mortgage-backed securities will be US$ 30 billion.

Bank Central Asia Chief Economist David Sumual assessed that the tapering policy would not have much of a significant impact on the Indonesian bond market, particularly government securities (SBN). According to him, so far there is no visible market signal that responds negatively and excessively. This is different from the tapering that occurred in 2013.

“The Fed's good communication has made the market already give expectations for this tapering. So, for this year, only tapering is happening. It's different from 2013, where tapering took place, then it was accompanied by a tantrum or turmoil in the market because it was all of a sudden," said David when contacted by Kontan.co.id, Thursday (4/11).

Furthermore, David sees that the market has so far been priced-in with this tapering sentiment. This is reflected in the various stock indexes in the United States which actually recorded a strengthening.

Similarly, Director & Chief Investment Officer of Fixed Income Manulife Asset Management Ezra Nazula revealed that there were no surprises from the results of the Federal Open Market Committee (FOMC) meeting. The market has also been priced in to the tapering effect by the Fed so that the SUN market will remain supportive and yield movements are more stable

“Especially with changes in market dynamism where local investors dominate the market and with high domestic liquidity. Moreover, the relatively minimal supply of bonds until the end of the year has also become a positive catalyst,” explained Ezra.

Just so you know, the government has just announced that it has canceled the remaining six SBN auctions for the remainder of the year because the state budget funding sourced from the SBN auction has been fulfilled.

As for SBN, David believes that due to different conditions from 2013, the market will not be filled with worries. At that time, the current account deficit was recorded at over 3%, while now it is experiencing a surplus. Moreover, Indonesia's economic indicators are also slowly starting to improve.

“So there is no reason for investors to sell because our fundamentals are quite good. If Covid-19 control can be consistently good, public consumption will increase, the economy will recover, we will have a strong position. In addition, in terms of yield, this SBN is actually very attractive,” he said.

Meanwhile, Ezra estimates that the yield for the benchmark 10-year government bonds can still penetrate the 6% level and fall to the range of 5.5-5.75%.

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