BII Weekly Bond Report - 20 May 15

Bond Market Pressured by Global & Domestic Sentiments

BOND MARKET REVIEW

Indonesia bond market corrected positively last week post significant losses during previous week. Positive sentiments were showering on most of the day within last week. On the first couple of day of last week, bond market responded positively to lower than expected U.S. NFP data which was released last Friday and China reference rate cut by 25bps to 5.10% during the weekend as well as a better incoming bid and stabled awarded Weighted Average Yield (WAY) during the bond auction. The big positive move came in on Wednesday as Bank Indonesia member gave a statement of a possible rate cuts yet emphasis that it would depend on data. However, BI decided to maintain its reference rate at 7.50%. Bank Indonesia intervening the market last week also supported the gains last week. Overall, market across the region moved mixed last week with Indonesia bond market leading with an incline of 1.62% followed by Singapore (+0.85%), China (+0.58%), India (+0.26%) and Taiwan (+0.10%). On the other hand, South Korea bond market booked the most losses (-0.47%) followed by Thailand (-0.32%), Philippines (-0.13%) and Malaysia (-0.01%).

Foreign ownership stood at Rp507.1 tn or 38.11% of total tradable government bond as of May 15^th. Considering a 2 days settlement, Foreigner booked net sell worth of Rp2.83 tn between beginnings of the month till May 12^th. On the other hand, Bank Indonesia was seen interning the bond market and was seeing buying with a total of Rp8.78 tn for the same period of time while banks purchased Rp6.25 tn.

Total trading volume at secondary market for the government segment was noted amounting Rp61.48 tn with average trading volume per day of Rp15.37 tn (vs average per day (Jan – Dec) trading volume of Rp12.70 tn) during last week with FR0070 (10y benchmark series) as the most actively traded with total volume reported amounting Rp20.27 tn. On the corporate segment, total trading volume was noted heavy amounting Rp3.16 tn resulting in average trading volume per day of Rp0.79 tn (vs average per day (Jan – Dec) trading volume of Rp0.75 tn) with WOMF01BCN3 (Shelf Registration I WOM FInance Phase III Year 2015; B serial bond; Maturity date: 28 Mar 2023; Rating: AA_(idn)) as the most actively traded bond with total volume reported amounting Rp540 bn.

DOMESTIC MARKET UPDATE

April Trade Balance came in surplus of $0.45 bn; 1Q 15 CAD narrows to US$3.8 bn while Bank Indonesia halts its BI Rate. Several data were published during last week as well as beginning of this week. Indonesia April trade balance which was published by Indonesia Statistics came in surplus of US$0.45 bn which is higher compared to economist consensus of US$0.12 bn yet lower compared to March trade balance of US$0.70 bn. The surplus occurred as the imports growth decline rapidly compared to exports negative growth. However, the growth of exports remains negative. Bank Indonesia published Indonesia’s Q1 15 Balance of Payment data which came in surplus of US$1.3 bn. 1Q CAD narrows to US$3.8 bn (1.9% of GDP) buoyed by narrowing oil and gas deficit. On the other side, capital and financial account for the same period of time came in surplus of US$5.95 bn mainly supported by foreign capital inflows in the form of portfolio and direct investment. The LCY bond market have responded positively on the published data during Friday yet the price hike was not that significant as market were waiting for Bank Indonesia Board of Governor meeting this week. Bank Indonesia finally decided to halts its BI rate during Tuesday Board of Governors meeting. BI Reference rate, deposit and lending facility rate stood at 7.50%, 5.50% and 8.00% respectively. BI also loosens macro prudential policy by soon planning a revision of LDR-RR regulation, LTV policy for mortgage loans as well as down payments on automotive loans.

Incoming bids came in Rp5.08 tn; awarded bids: Rp2.51 tn. Indonesian government conducted their sukuk auctions yesterday and received incoming bids of Rp5.08 tn bids versus its target issuance of Rp2.00 tn or oversubscribed by 2.5x. However, DMO only awarded Rp2.51 tn bids for its 5mo SPN-S which was sold at a weighted average yield (WAY) of 6.03781%, 1y PBS008 at 7.59510% while 26y PBS007 was sold at 8.70749%. Incoming bids were mostly clustered on front end tenors. PBS006 bid was rejected during the auction. Bid-to-cover ratio during the auction came in at 1.04X – 7.77X. Post auction, DMO announced that they will change the structure of SPN issuance in term of issuance size for 9mo and 1y SPN to Rp4 tn – Rp5 tn for each series (tenors). Till the date of this report, Indonesian government has raised approx. Rp34.44 tn worth of debt through bond auction which represents 41.3% of the 2Q 15 target of Rp83.50 tn. On total, Indonesian government has raised approx. Rp214.6 tn worth of debt through domestic and global issuance which represent 47.5% of this year target of Rp451.8 tn.

This week, we see Indonesia bond market would move in a negative direction as there will be minimum sentiments mainly post Bank Indonesia maintaining its reference rate. LCY bond market would react (positively/negatively) to FOMC minutes publish. However, response to U.S. inflation data which is expected to be published post Friday market close would be occurring upcoming Monday. We see the 10y yield to move within the range of 8.000% - 8.400% this week.