CIMB IDR Weekly Fixed Income Market Commentary ended 10 April 2015

 
Indonesia government bond market strengthened for the week ended Apr 10, with yields decreased by about 10 to 15bps along the curve. Weaker-than-anticipated US non-farm payrolls and dovish tone from Federal Reserve’s minutes of meeting have increased the possibility of interest rate hike later this year, thus supporting Rupiah and domestic bond market. Meanwhile, trading volume down to about IDR10.45 trillion per day.
Government conducted a regular Islamic bond auction last week and absorbed IDR2.64 trillion from incoming bid amounting IDR5.40 trillion. Average weighted yields were 9bps lower for 6-months T-bills and about 10bps higher each for Project Based Sukuk 06, 07 and 08 than prior auction result dated on 24 March. At this moment, the government has issued a total of IDR182.78 trillion year-to-date, from 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 9-month T-bills, FR69 (maturing in 2019) and FR71 (maturing in 2029).
Bank Indonesia reported that the March foreign exchange reserves fell to USD 111.6 billion from USD 115.5 billion recorded in February, due to government external debt payments and BI intervention in the FX market to stabilize rupiah exchange rate.
In our opinion, the bond market may see support, guided by the narrowing yield spread between the 3- and 10-year government bond and widening spread between IRS and bond. On the flip side US inflation is expected to be higher in March (forecast: +0.3% m/m) thus negative for global bond market including Indonesia. Hence, we view that the bond market could strengthen marginally this week.
In credit market, we saw slightly heavier flows with average volume of IDR544 billion per day. Market interest were much diversified last week as AAA, AA+ and A rated bonds dominating the market compared to the previous week’s mostly AAA rated bonds only. The most actively traded bonds were Agung Podomoro Dec’19 (A) and Sub. Bank BII Dec’18 (AA+).