CIMB IDR Weekly Fixed Income Market Commentary ended 8 May 2015

 
·         Indonesia government bond market weakened sharply for the week ended 8 May, with yields increased by about 30-45bps. Weaker Rupiah, tighter liquidity and higher energy price were the main factors behind sell-off in the bond market. Possibility of monetary stimulus from Bank Indonesia amid weak economic growth on the other hand was supporting the domestic bond market. Meanwhile, average trading volume improved to about IDR11.3 trillion per day.
·         Government conducted a regular Islamic bond auction last week and absorbed IDR1.96 trillion, very much in line with the indicative target. Auction result was average, receiving bids amounting IDR3.6 trillion, while the average weighted yields were generated at 5.91% for 6-month T-bills, 7.82% for Project Based Sukuk PBS06, 8.45% for PBS07 and 7.39% for PBS08. At this moment, the government has issued a total of IDR200.28 trillion year-to-date, from annual gross target of IDR452.19 trillion.
·         This week government will conduct a regular bond auction with indicative target of IDR8 trillion, which includes 3 and 12-month T-bills, Fixed Rate FR70 (maturing in 2024) and FR68 (maturing in 2034).
·         Rupiah money market rate as indicated by 3-month IDR Jibor has increased again to 6.915% on 11 May from 6.873% on 4 May. 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 high yield and also negative spread between IRS and government bond yield curve. However, higher energy price and high nominal benchmark interest rate could negatively affect domestic bond market. Hence, we view that the bond market could strengthen marginally this week especially on the front-end of the curve.
·         In credit market, we saw smaller flows with average volume of IDR535 billion per day. Market still focused on AAA and A rated papers, similar to what we noted during last two weeks. The most actively traded bond by volume and frequency was the newly issued Federal International Finance May’16 (AAA).