CIMB IDR Weekly Fixed Income Market Commentary ended 5 June 2015

 

·         Indonesia government bond market weakened for the week ended June 5, with yields increased by about 10-35bps along the curve, especially on the belly and the tail. Global bond market sell-off due to higher than anticipated Eurozone inflation, strong US labor market and also anticipation of high inflation in Indonesia due to the festive season were the main reasons behind weak domestic bond market. Meanwhile, average trading volume eased to about IDR8.81 trillion per day.
·         The government conducted a regular Islamic bond auction last week and absorbed only IDR1.69 trillion worth of bids, lower than indicative target of IDR2 trillion. Weighted average yields were 6.07% for Dec’15 T-bill, 8.19% for Project Based Sukuk PBS06 and 7.70% for PBS08. The government has issued a total of IDR249.48 trillion year-to-date, versus the annual gross target of IDR452.19 trillion.
·         This week, the government will conduct a regular bond auction with indicative target of IDR10 trillion, which includes 3 and 12-month T-bills, Fixed Rate FR53 (maturing in 2021) and FR71 (maturing in 2029).
·         Eurozone inflation in May was 0.3% year-on-year, the highest in the last six months. US non-farm payrolls increased 280 thousand, much higher than median estimate of 226 thousand. Both events pushed up 10Y UST yield to 2.434%, the highest in 8 months.
·         In our opinion, in the medium to long term the bond market may see support, guided by current high yields and possibility of an Indonesian sovereign rating upgrade. However sell-off in the global bond market and anticipation of high inflationary pressure in the coming months due to the fasting month could weaken the domestic market. Hence, we view that the bond market may weaken this week especially on the front end of the curve.
·         In credit market, we saw weaker flows with average volume of IDR473 billion per day. Market returned focus to “AAA” rated papers during market sell-off and credit spreads slightly widened. The most actively traded bond by volume was Adira Dinamika Dec’16 (AAA) as well as Tunas Baru Lampung Jul’17 (A) and by frequency was Mandala Multifinance May’18 (A).