CIMB IDR Weekly Fixed Income Market Commentary ended 27 November 2015

·         Indonesian government bond yields ended slightly lower for the week ended 27 November. Yield decreased by 3-5bps only on the belly and tail of the curve and dropped significantly more on the front end of the curve (decreased by 15-20bps). Anticipation of much lower domestic inflation figure by year end supported short maturity bonds. On the flip side dimmed global economic outlook reduced appetite for longer tenor bonds. We expect supply to be thin for the remainder of this year as the government has achieved issuance target, which will provide support to the domestic bond market.
·         The government conducted its regular IDR bond auction last week and absorbed IDR9 trillion of funds out of incoming bids of IDR17.86 trillion. Government also issued total IDR 15.91 trillion of non-tradable bills (regular and Islamic) through three private placements. The government has issued about 106.85% of the annual gross target of IDR461.75 trillion (assuming budget deficit 2.23% of GDP). On top of that the government plans to issue regular bonds on 1 Dec targeting IDR6 trillion.
·         Indonesia’s inflation in November is expected to be 4.83% year-on-year, the lowest since October 2014. Inflation has returned to much lower level after the impact of last year fuel price increases wear off.
·         Attractive yield offering in the domestic bond market as well as anticipation of a BI rate cut by year end will support the domestic bond market. Expectations of rate increase by Federal Reserve in December have been mostly priced in thus Dollar bullish run could be reversed as market sells on fact. Hence, we view the bond market may strengthen this week especially on the belly and tail of the curve.