· Indonesia government bond market strengthened for the week ended 15 May, with yields decreased by about 15-25bps, especially on the tail. Stronger Rupiah, improving liquidity and the global bond market rally were the main factors behind rebound in domestic bond market. Possibility of monetary stimulus from Bank Indonesia amid weak economic growth and improving current account has been supporting the domestic bond market. Meanwhile, average trading volume improved considerably to about IDR15.3 trillion per day.
· Government conducted a regular bond auction last week and absorbed IDR11.80 trillion, much higher than the indicative target of IDR8 trillion. Average weighted yields were generated at 5.77% and 6.53% for 3- and 12-month T-bills respectively, 8.16% for FR70 and 8.48% for FR68. At this moment, the government has issued a total of IDR212.08 trillion year-to-date, from annual gross target of IDR452.19 trillion.
· This week government will conduct a regular Islamic bond auction with indicative target of IDR2 trillion, which includes 6-month T-bills, Project Based Sukuk PBS06 (maturing in 2020), PBS07 (maturing in 2040) and PBS08 (maturing in 2016).
· In our opinion, the bond market may see support, guided by high yield and also razor thin spread between IRS and government bond yield curve. Possibility of monetary stimulus from Bank Indonesia and a chance of delay of Fed Funds rate first hike are also supporting the domestic bond market. Hence, we view that the bond market could strengthen this week especially on the tail of the curve.
· In credit market, we saw much heavier flows with average volume of IDR769 billion per day. Market focused mainly on AAA rated papers. The most actively traded bond by volume was WOM Finance Apr’18 (AA) and by frequency was Sumber Alfaria May’18 (AA-).
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