CIMB IDR Weekly Fixed Income Market Commentary ended 29 May 2015

 

• Indonesia government bond market weakened for the week ended 29 May, with yields increased by about 5-10bps along the curve, especially on the front end and the bellies. Global bond market sell-off due to better than expected US housing data and also anticipation of high inflation in Indonesia due to the festive season were the main reasons behind weak domestic bond market. Meanwhile, average trading volume eased to about IDR10.6 trillion per day.
• The government conducted a regular bond auction last week and absorbed only IDR7.2 trillion worth of bids, lower than indicative target of IDR10 trillion. Weighted average yields were 6.60% for Mar’16 T-bill, 8.20% for Fixed Rate FR70 and 8.41% for FR68. The government has issued a total of IDR247.80 trillion year-to-date, versus the annual gross target of IDR452.19 trillion.
• This week, the 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 Jun’16).
• Inflation jumped to 7.15% year-on-year in May, the highest in the last five months. Monthly inflation was 0.50% m/m, driven by prepared food and food prices. Year-to-date inflation was only 0.42%. Full year inflation target is still below 5 percent.
• In our opinion, in the medium to long term the bond market may see support, guided by current high yields and possibility of an Indonesian sovereign rating upgrade. However sell-off in the global bond market and anticipation of high inflationary pressure in the coming months due to the fasting month could weaken the domestic market. Hence, we view that the bond market could weaken this week especially on the front end of the curve.
• In credit market, we saw better flows with average volume of IDR663 billion per day. Market changed focus towards “AA” rated papers instead of “AAA” rated papers and spread over government bonds narrowed. The most actively traded bond by volume was WOM Finance Apr’18 (AA) and by frequency was Mandala Multifinance May’17 (A).