BII Weekly Bond Report - 29 Jul 15

Under pressured by Global Sentiments

BOND MARKET REVIEW

Indonesia bond market post Eid Al Fitr holiday closed with a slight gains. There was minimum market sentiments during the week as most of the market players might had continued their long holiday till Friday. Price volatility was seen tight supported with a rather thin trading volume. However, several inflows to the bond market have helped bond prices to move higher. Yet, the hike was hampered by depreciating Rupiah currency to above Rp13,400 per USD level. Global data releases from Indonesia major trading partners during the Eid Al Fitr holiday seemed had not affected the price volatility last week. Issuance of Eurobond worth €1.25 bn was carried out last week. This issuance was actually scheduled to be conducted during the 1H15 and was postponed due to Greece issues. Overall, market across the region moved positive aside from Singapore and Thailand bond market which booked losses last week with a decline of 0.24% and 0.03% respectively. South Korea bond market book the highest gain by +0.75% followed by India (+0.37%), Malaysia (+0.26%), Indonesia (+0.25%), China (+0.22%), Taiwan (+0.22%) and Philippines (+0.20%).

Foreign ownership stood at Rp540.0 tn or 39.51% of total tradable government bond as of Jul 23^rd. Considering a 2 day’s settlement, Foreigner booked net buy worth of Rp4.30 tn MTD. On the other hand, Banks were also seen booking net buy worth of Rp3.97 tn. Foreign ownership proportion remains stable on the note of long holiday due to Eid Al Fitri.

Total trading volume at secondary market for the government segment was noted amounting Rp19.73 tn with average trading volume per day of Rp6.58 tn (vs average per day (Jan – Apr) trading volume of Rp14.72 tn) during last week with FR0070 (10y benchmark series) as the most actively traded with total volume reported amounting Rp2.81 tn. On the corporate segment, total trading volume was noted heavy amounting Rp1.54 tn resulting in average trading volume per day of Rp0.51 tn (vs average per day (Jan – Apr) trading volume of Rp0.82 tn) with DART01CN1 (Shelf registration I Duta Anggada Realty Phase I Year 2013; Maturity date: 8 Oct 2018; Rating: _idA-) as the most actively traded bond with total volume reported amounting Rp200 bn.

DOMESTIC MARKET UPDATE

DJPPR issued Euro denominated bond worth of €1.25 bn. In line with DJPPR media statement several weeks ago, DJPPR finally issued the planned Euro denominated bond last week under the name of RIEUR0725. This issuance occurred post stability in Eurozone specifically after the ease of Grexit tension. RIEUR0725 received incoming bids worth of €2.40 bn or oversubscribed by 1.9x of its target. RIEUR0725 pays a coupon of 3.375% for the next 10 year as it would mature on July 30^th, 2015. DJPPR sold RIEUR0725 at a discount rate of 98.507 making this asset YTM at 3.555%. This asset is rated BBB- with stable outlook from fitch, BB+ with positive outlook from S&P and Baa3 with stable outlook from Moody’s.

DJPPR issued Rp2.93 tn worth of sukuk in this week auction. Indonesian government conducted their sukuk auctions this week and received incoming bids of Rp6.73 tn bids versus its target issuance of Rp2.50 tn or oversubscribed by 2.6x. However, DMO only awarded Rp2.93 tn bids for its 5mo, 1y, 2.5y and 5y bonds. Incoming bids were mostly clustered on the front end tenors. 5mo SPN-S was sold at a weighted average yield (WAY) of 6.79794%, 1y PBS008 at 7.75000%, 2.5y PBS009 at 8.17987% while 5y PBS006 was sold at 8.50000%. PBS007 bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.91X – 2.68X. Till the date of this report, Indonesian government has raised approx. Rp17.93 tn worth of debt through bond auction which represents 28.5% of the 3Q 15 target of Rp63.00 tn. On total, Indonesian government has raised approx. Rp310.4 tn worth of debt through domestic and global issuance which represent 73.4% of this year target of Rp451.8 tn. Assuming that if Indonesia government issues Rp2.00 tn during every sukuk auction in 3Q 15 then the Government needs to issue Rp7.40 tn during every conventional auction (5 upcoming conventional auction in 3Q 15) to meet their target of Rp63.00 tn.

Earlier this week, LCY bond market have moved negative due to a slump of China equities market. For the rest of the week, we see that Indonesia bond market would close with losses. U.S. FOMC and U.S. 2Q GDP results would guide LCY bond market heading during the final days of this week. A hawkish statement or a FFR raise decision result would result in a significant slump in LCY bond prices. Continuation of USDIDR depreciation above Rp13,500 per USD level would pressure the LCY bond market as well. We see the potential of the 10y benchmark series to reach the 8.750% level. A break of this level would send this series yield to 8.830% or even with a worst scenario of above 9.000% level. Hence, 10y yield between 9.000% - 9.200% would be a decent start of entering Indonesia bond market.