Maybank Weekly Bond Report - 13 June 2016

Highlighting on FOMC

BOND MARKET REVIEW

Indonesia bond market closed with a weekly gain supported by buying appetite post U.S. Labor data which was released previous Friday. The result was in favorable to IGS market as the data decreases probability of FFR hike in the month of June. Statement by Fed Yellen during begin week also shows that she was disappointed with May NFP data, however, reiterated that FFR needs to rise gradually overtime without giving any time frame for the next FFR hike. Aside positive sentiment from global which was mostly contributed by sluggish U.S. labor data, the increasing appetite of IGS in our view may have also occurred as the country is carrying the widest real interest rate. As a result, Bi-Weekly bond auction received the highest incoming bids from begin year worth of Rp42.3 tn while DMO awarded bids worth of Rp18.0 tn. Bidders which failed to win during the auction may have chase the auctioned IGS series through secondary market which have drag IGS prices higher. Indonesia successfully issued their Euro denominated sovereign worth of €3 bn or equivalent to Rp45 tn. 7y and 12y tenor were the two maturity series offered and was sold at yield of 2.77% and 3.9% respectively. This marks the achievement of 2016 global bond initial issuance target. However, the issuance size of global bond may increase due to widening 2016 budget deficit. Having to know that, Indonesia government is planning to issue samurai bond worth of ¥64 bn to be part of Rp21 tn additional financing needs. During the final day of last week, IGS yield incline on the note of profit taking and bets that Fed might surprise with a rate hike this week. However, the decline of prices can’t offset the significant price hike within the week thus we see that prices decline as a healthy correction. During the week, Indonesia Central Bank issued Indonesia’s official reserve asset which stood at US$103.6 bn as of end May 16. This figure was lower compared to end Apr 16 figure which stood at US$107.7 bn. The decline was mainly influenced by supply of foreign exchange for repayments of residents’ foreign currency obligations in line with its seasonal pattern that resulted in lower placement of banks’ foreign currency term deposit at Bank Indonesia.

Total trading volume at secondary market for the government segment was noted heavy amounting Rp82.31 tn during last week with FR0073 (15y benchmark series) as the most actively traded. On the corporate segment, total trading volume was noted moderate amounting Rp3.48 tn with TAFS02ACN1 (Shelf registration II Toyota Astra Financial Services Phase I Year 2016; A serial bond; Maturity date: 11 Jun 2017; Rating: AAA_(idn)) as the most actively traded bond.

Foreign ownership stood at Rp635.7 tn or 38.6% of total tradable government bond as of June 9^th. Considering a 2 day’s settlement, Foreigner booked net buy worth of Rp12.88 tn within the month of June and are the biggest buyer. During the same period, banking sector bought Rp3.03 tn.

Events which would affect movement of IGS prices this week are upcoming FOMC meeting, U.S. May CPI and retail sales, Eurozone May CPI release, BI Board of Governor meeting and May Indonesia trade balance data release. Upcoming FOMC meeting would be the highlight event for this week. Despite declining probability of FFR hike in the month of June, yet shock move by Fed by increasing its rate would result in IGS prices declining. Hence, we believe that IGS prices this week would be moving sideways. We also remain optimist on IGS in the second semester of 2016.