CIMB IDR Weekly Fixed Income Market Commentary ended 19 June 2015

• Indonesian government bonds rebounded in the week ended June 19, with yields down 10-20bps across the curve, especially on the bellies. We noted the possibility of delays in rate hikes by the Fed boosting the domestic bond market, as well as what we think are attractive domestic yields on offer currently. Meanwhile, average trading volume dropped to about IDR12.2 trillion per day.
• The government conducted a regular Islamic bond auction last week and absorbed IDR2.69 trillion worth of bids, higher than indicative target of IDR2 trillion. Weighted average yields were 8.68% for Project Based Sukuk PBS06, 9.19% for PBS07 and 7.81% for PBS08. The government has issued a total of IDR267.18 trillion year-to-date, versus the annual gross target of IDR452.19 trillion.
• This week, the government will conduct a regular bond auction with indicative target of IDR12 trillion, which includes Apr’16 T-bills, Fixed-Rate FR53 (maturing in 2021), FR56 (maturing in 2026), FR71 (maturing in 2029) and FR68 (maturing in 2034).
• The US Federal Reserve looked more optimistic on US economic outlook according to latest statement. The Fed sees that inflation pressure remain low due to strong Dollar. The negative impact of winter on economy in the first quarter makes The Fed revises down US economic growth forecast. The Fed indicates that maximum 50bps increase only on funds rate this year.
• In our opinion, in the medium to long term period, the bond market may see support, guided by current high yields and possibility of an Indonesian sovereign rating upgrade. However 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 may continue to strengthen this week especially on the belly and tail of the curve.
• In credit market, we saw stronger flows with average volume of IDR721 billion per day. Market still focused to “AAA” rated papers during market sell-off. Credit spreads narrowed especially on “AAA” and “AA” rated papers. The most actively traded bond by volume was Indosat Jun’16 (AAA) and also Eximbank Nov’15 (AAA) and by frequency was still Indosat Jun’18 (AAA).