CIMB IDR Weekly Fixed Income Market Commentary ended 12 Sept 2014

• Government bonds booked significant losses last week. Yields closed higher by up to 27bps particularly along longer dated bonds. We saw that the weakening was underpinned by profit-taking action after the market had booked large gains previously. In addition, we did not see any drivers to stop the selling action in the week.
• BI rate announcement gave no substantial impact on the market as it was already reflected in the price beforehand. Economists surveyed by Bloomberg had anticipated that BI rate will be kept at the same level of 7.50%. In addition, daily volume was still heavy, averaging IDR11.50 trillion.
• The government conducted sharia debt securities auction, successful in raising funds totaling IDR1.03 trillion only, below the target of IDR1.50 trillion. As usual, most of demand which is around 73% of total concentrated to shorter dated paper namely 6-month SPNS. Moreover, the government also absorbed about IDR3 trillion from private placement sukuk. We noted that currently, in total, the government has issued around IDR333 trillion or approximately 78% of its total target.
• The government also held debt switch auction. It awarded IDR307 billion only from total demand of IDR2.68 trillion. There were 11 source bonds with maturity of 4 year and less, whilst the destination bonds were the benchmark series namely 5-year FR69, 10-year FR70, and 15-year FR71.
• This week, we see that the market movement will depend on two things. The first is auction result that will be conducted on 16 September. We think that the auction will attract large funds around IDR20-25 trillion. However, players may ask relatively high yields as the market weakened recently. We view the government may still absorb around IDR12-15 trillion, more than the indicative target of IDR10 trillion. If the auction is successful and demand is very significant, it may support positive movement.
• Secondly, players are also awaiting the FOMC meeting this week. Players will pay their attention to whether the Fed gives signal about interest rate hike in the near future as in general US economy data continued to show improvement recently.

The credit market also booked losses especially along longer dated papers. However, volume increased last week with daily average volume of IDR591 billion approximately versus IDR324 billion in the previous week. The heaviest traded corporate bond is Indonesia Eximbank Shelf Registration Bond II Phase IC Jun'17 amounting IDR302 billion.