CIMB IDR Weekly Fixed Income Market Commentary ended 24 April 2015

 
·         Indonesia government bond market weakened for the week ended Apr 24, especially on the front end, with yields increased by about 13 to 18bps. Yields were marginally higher on the bellies and tails, increased by about 4 to 8bps. Tight Rupiah liquidity and higher energy price were mainly the reasons behind weaker bond performance. Stronger Rupiah on the other hand was supporting the domestic bond market. Meanwhile, average trading volume sharply fell to about IDR7.7 trillion per day.
·         Government conducted a regular Islamic bond auction last week and absorbed IDR2.03 trillion from incoming bid amounting IDR4.73 trillion. Auction was considered successful compared to weak bond auction result in the previous week, as the average weighted yields were generated at 5.75% for 6-month T-bills, 8.31% for PBS07 and 7.18% for PBS08. At this moment, the government has issued a total of IDR193.47 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 10-month T-bills, Fixed Rate FR69 (maturing in 2019), FR71 (maturing in 2029) and FR67 (maturing in 2044).
·         Rupiah money market rate as indicated by 3-month IDR Jibor has inched up to 6.88% on 27 Apr from 6.85% on 13 Apr. Higher money market rate has been driven by lack of fresh supply of Rupiah from Bank Indonesia’s swap auction amid Dollar buying and also higher inflation expectation due to rising oil price.
·         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. Stronger Rupiah is also positive for bond market. However, higher energy price could negatively affect domestic bond market. Hence, we view that the bond market could weaken marginally this week.
·         In credit market, we saw slightly bigger flows with average volume of IDR527 billion per day. Market focused mainly on AAA and A rated papers. The most actively traded bonds were Surya Semesta Internusa Nov’17 (A), AKR Corporindo Dec’17 (AA-) and Agung Podomoro Aug’17 (A).