· Indonesian government bonds continued to strengthen for the week ended July 3, with yields fell by 5-20bps across the curve, especially on the front end of the curve. Disappointing US labor data in June and lower than anticipated Indonesia inflation also in June were the reasons behind strong domestic market. Investor shrugged off Greek debt crisis and continued to show bidding interest in the market. Trading volume was decent averaging IDR 16 trillion per day.
· The government conducted a regular Islamic IDR bond auction last week and also a domestic USD bond auction. Government absorbed bonds totaling IDR8.82 trillion. The government has issued a total of IDR293.99 trillion year-to-date, versus the annual gross target of IDR452.19 trillion.
· Indonesia consumer prices in June increased by 7.26% year-on-year, lower than market median estimate (7.39%). Monthly inflation was 0.54% m/m which primarily driven by higher food prices in the festive season. Year-to-date inflation was only 0.96% or 1.93% annualized.
· This week, the government will conduct a regular bond auction with indicative target of IDR10 trillion, which includes Oct’15 and Jul’16 T-bills, Fixed Rate FR56 (maturing in 2026) and FR72 (maturing in 2036).
· Attractive yield offering as well as anticipation of lower inflation by year end have supported domestic bond market. On the flip side, risk of contagion due to high possibility of Greece default may hurt market confidence. Hence, we view that the bond market may weaken a bit this week especially on the belly and tail of the curve.
· Yield spread narrowed in corporate bonds. Most actively traded bond by volume was Subordinated Bank Capital Jan’22 (BBB-) while by frequency was Subordinated Bank CIMB Niaga Dec’20 (AA). Market activities increased its turnover until the end of the week where volume booked moderate level in the range of IDR600 billion daily.
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