CIMB IDR Weekly Fixed Income Market Commentary ended 10 July 2015

·         Indonesian government bonds weakened for the week ended July 10, with yields increased by 10-15bps across the curve, especially on the belly and tail of the curve. Sentiment was driven by the Greek debt crisis and China stock market meltdown. Much bigger than anticipated bonds sold at the auction also negatively affected the domestic market. Trading volume was decent averaging IDR15.5 trillion per day.
·         The government conducted a regular IDR bond auction last week and absorbed IDR15 trillion out of incoming bids amounting IDR26.4 trillion. Government also issued IDR2 trillion of 10-year Islamic bonds (SDHI 2025 A) for Hajj Fund through private placement with Ministry of Religion. The government has issued a total of IDR312 trillion year-to-date, versus the annual gross target of IDR452.19 trillion. On top of that, the government will conduct a regular Islamic bond auction with indicative target of IDR2 trillion on 28 July.
·         Government will announce trade balance data for June this week. We expect it will be a surplus of USD216 million, the seventh trade surplus in a row. Aside, Bank Indonesia will conduct the monthly meeting and expected to keep benchmark rates steady. Meantime, we expect BI to cut interest rate by 50bps in the second half of the year.
·         Attractive yield offering as well as anticipation of lower inflation by year end have supported domestic bond market. Market will be less active for the next two weeks due to long holidays. Hence, we view that the bond market may weaken a bit this week especially on the belly and tail of the curve.
·         Yield spread narrowed slightly in corporate bonds especially in high rated papers. Most actively traded bond by volume was Modernland Dec’17 (A) while by frequency was Summarecon Oct’19 (A+). Market activities increased its turnover until the end of the week where daily average volume amounting IDR900 billion.