CIMB IDR Weekly Fixed Income Market Commentary ended 07 November Oct 2014

·         Last week Government bonds yields decreased slightly along the curve, amid a lack of fresh supply of bonds following the last bond auction for this year was supporting bond market. Government plan to increase fuel price also has been improving bond market outlook. Trading volume in the government bond market increased to an average of IDR10.69 trillion per day from IDR9.44 trillion recorded in the previous week.
·         This week, the main drivers will be Bank Indonesia meeting and the possibility of government announcing the detail of fuel price hike plan. Bank Indonesia is expected to keep interest rate steady at 7.50% with the anticipation of higher fuel price and to manage current account deficit. Fuel price could be increased by approximately 20% thus driving up inflation to about 6.5%.
·         Low market volatility could increase demand for high yield emerging market bond such Indonesia. Yields could continue to be driven lower especially along the medium and long tenors due to stabilizing Rupiah, lower crude oil price and tight supply of bonds. We noted that currently, in total, the government has issued all the gross issuance needed for this year or about IDR 430 trillion.
·         The credit market was less active and yields were moving in line with government bond market. Volume decreased last week with average daily volume of IDR508 billion versus IDR747 billion in the previous week. The heaviest traded corporate bond was Astra Sedaya Finance Oct’17 AAA(idn) amounting to IDR255 billion. We noted that AAA rated bonds garnered 37% of weekly volume while AA+ rated bonds gathered 21%. On the other hand, 56% of total volume was contributed by short term bonds with below 3-year maturity, down from 64% in the previous week.