Tuesday, August 2, 2016

IGS Prices to Continue Move Higher

IGS Prices to Continue Move Higher


Indonesia bond market closed with a gain last week. Contribution to such hike came in from both globally and domestically. The week started with positive sentiment coming from Japan where investors expect BOJ to expand stimulus. However, investors were disappointed as BOJ announced a modest expansion of its monetary easing programme by leaving interest rate unchanged at 0.1% and increase exchange-traded funds purchases so that its total holdings increase at an annual pace of 6 trillion yen ($57bn), up from the current 3.3 trillion yen. Yet this resulted positive to the IGS market. The Sukuk auction which was conducted last week was noted to be impressive. Incoming bids of Rp21.36 tn was noted the highest since begin year while bids awarded amounted Rp5.42 tn. However, We view that the expectation of the same result during upcoming conventional auction may have triggered an IGS price surge. The welcome back of Ibu Sri Mulyani as Indonesia’s Finance Minister have impacted positively towards the IGS market. During the live introduction by the Indonesia President on her appointment, volatility of IGS prices was seen. Investors hopes that the heroine which once lead Indonesia through the 2008 crisis (toughest time) could now boost Indonesia’s economy ahead. Investors’ confidence grew thus resulting in a support to IGS price hike last week. FOMC meeting decided to keep their rates unchanged at 0.5% while did little to signal any rate hike in the near future. While this release was seen supporting IGS prices as well yet the data which may fade the expectation of FFR hike this year is the 2Q US GDP result which came in at 1.2% QoQ vs expected of 2.5% QoQ. However, IGS market has not responded to this data as the data was release post market close.
Total trading volume at secondary market for the government segment was noted heavy amounting Rp68.26 tn during last week with FR0056 (10y benchmark series) as the most actively traded. On the corporate segment, total trading volume was noted heavy amounting Rp3.68 tn with PNBN01SBCN1 (Subordinated Shelf Registration I Bank Panin Phase I Year 2012; Maturity date: 20 Dec 2019; Rating: idAA) as the most actively traded bond.
Foreign ownership stood at Rp657.9 tn or 39.3% of total tradable government bond as of July 28th. Considering a 2 day’s settlement, Foreigner booked net buy worth of Rp9.21 tn within the month of July. During the same period, banking sector bought Rp21.89 tn.
The IGS market has started the week with prices moving higher as a response to weaker US 2Q GDP as well as higher China Manufacturing PMI which came in at 50.6 and was noted higher compared to expectation of 48.8. Aside from that, Indonesia CPI during the month of July came in at 0.69% MoM or 3.21% YoY. Despite monthly inflation came in the highest since begin year, yet the success of the government to contain the hike of food prices during Eid Al Fitr celebration through various ways have resulted inflationary pressure to ease this year (last year monthly inflationary pressure: 0.93% MoM). We see that IGS market will close higher this week. Slight movement of IGS prices may occur due China July Trade Balance. However, the main contribution to the incline of IGS this week, in our opinion will come from a decent demand during the bi-weekly auction, higher 2Q GDP growth where we are expecting that the economy would grow by 5% in the 2Q16 and expectation of a weaker US Labor data.

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