BII Weekly Bond Report - 4 Sep 15

Sliding Bond Prices

BOND MARKET REVIEW

·         In line with our expectation, Indonesia bond market moved mixed within the week. Positive sentiment came in from better August inflation number which came in at 7.18% YoY or much better compared to previous month and economist consensus as well as successful bond auction (we consider it as a despite declining demand remembering that supply starts to scars and attractive yield). However, the expectations of ECB and BOJ expansion of stimulus through bond purchase, China manufacturing PMI reaching 49.7 level, awaiting of “Big Stimulus” publication and U.S. labor data which was set to be published post market closed have pressurized the LCY bond market last week. U.S. labor data which was published post market close was more a mixed bag with unemployment rate reaching 5.1% while U.S. NFP surprised to the downside with a 173K print (vs. consensus at 217K). Overall, market across the region moved mixed with Malaysia bond market recorded the highest gain by 0.49% and Philippines bond market booking the largest loss of -0.38% last week.

·         Total trading volume at secondary market for the government segment was noted amounting Rp57.37 tn during last week with FR0053 (6y) as the most actively traded. On the corporate segment, total trading volume was noted heavy amounting Rp4.27 tn with BEXI01BCN3 (Shelf registration I Indonesia Eximbank Phase III Year 2013; B serial; Maturity date: 23 May 2016; Rating: _idAAA) as the most actively traded bond.

·         Foreign ownership stood at Rp528.5 tn or 37.74% of total tradable government bond as of Sep 3^rd. Considering a 2 day’s settlement, Foreigner booked net sell worth of Rp6.90 tn in the month of August. Within the same period, Banks purchased Rp19.72 tn while central bank purchased Rp5.29 tn.

·         This week, we see that Indonesia bond market has started with a slump of bond prices as a response to last week U.S. labor data publication and declining August FX reserve to US$105.35 bn. We continue expecting the 10y benchmark series yield to reach 9.20% and a break of this level would drag the asset yield to reach 9.60% level. This upward yield movement would be supported by expectation of FFR hike on upcoming Sep FOMC meeting, continuation of local currency depreciation and upcoming China economic data release.