CIMB IDR Weekly Fixed Income Market Commentary ended 27 March 2015

 
Indonesia government bond market strengthened for the week ended Mar 27, with yields fell by about 6 to 11 bps. Yields fell much drastic on the front end and along the curve bellies, while yields dropped marginally on the tails. Uncertainties regarding the timing of interest rate hikes in the US had supported Indonesia bond market but expectations of higher domestic gasoline price and strong economic data in the US have been limiting bond performance. Meanwhile, trading volume improved slightly to about IDR 13.6 trillion per day.
Government conducted a regular Islamic bond auction last week and absorbed IDR1.98 trillion from incoming bid amounting IDR3.25 trillion, slightly lower than indicative target of IDR2 trillion. Average weighted yields were 18 bps higher for 6-months T-bills but 4 bps lower for PBS07 (maturing in 2040) respectively than prior auction result dated on 10 March. Government also issued IDR2.7 trillion PBS06 by private placement to Indonesia Deposit Insurance Corporation. At this moment, the government has issued a total of IDR170.16 trillion year-to-date out of annual gross target of IDR452 trillion (budget revision).
This week government will conduct a regular bond auction with indicative target of IDR10 trillion, which includes 3 and 12-month T-bills, FR70 (maturing in 2024) and FR68 (maturing in 2034).
Government increased domestic fuel price by IDR500/ liter starting 28 March or about 7%. The new fuel prices are IDR7400/ liter for gasoline RON 88 and IDR6900/ liter for diesel oil for Java, Madura and Bali area. Rising core inflation, low initial jobless claims and 7-year high new home sales in the US on the other hand have been supporting USD against Rupiah and weakened domestic bond market.
Narrowing yield spread between the 3- and 10-year government bond and widening spread between IRS and bond are the factors that supporting bond market this week.
In the credit market we saw slightly smaller activity with average volume of IDR568 billion per day. Market was still dominated by AAA rated bonds, while interest improved along the bonds with maturity more than five years. The most actively traded bonds were Exim Bank Mar’16 (AAA) and Sub. Bank Victoria Jun’20 (BBB+).
 
Kind Regards,
CIMB Niaga Treasury Research