Maybank Weekly Bond Report - 25 Apr 16

Divergence or Rally?

BOND MARKET REVIEW

IGS prices did move sideways and closed the week with a slight correction as there was lack of data release globally as well as domestically. This result was in line with our expectation during last week weekly bond report release. Several events globally such as failing of agreement between oil producers to freeze output at Doha meeting and ECB decision to keep their policy package unchanged where their deposit facility rate remains at -0.4% and its asset-purchase program at EU80 a month; have influenced minimally towards the movement of IGS prices last week. Domestically, central bank decided to halt their reference rate at 6.75% after reducing it for three meeting in a row. We believe that the halt was more to avoid any misperception and a mixed signal as well as the decision is consistent with efforts to stay within the inflation target throughout 2016 at 4±1%. DMO also conducted sukuk auction last week which received an impressive incoming bids worth of Rp15.31 tn or oversubscribed by approx. 3.8x of its target. This demand was the highest during sukuk auction since begin year. However, DMO only awarded bids worth of Rp6.19 tn. Aside from conducting Bi-weekly auction, during the week, DMO also conducted debt switch which received Rp1.83 tn bids while only awarded bids worth of Rp0.47 tn. One of the highlight this week was the country’s president five days state visit to EU where he managed to receive several FDI commitments worth more than Rp250 tn. Despite this is a positive story for IGS yet the implementation of such commitment would really result in higher IGS prices.

Total trading volume at secondary market for the government segment was noted heavy amounting Rp57.97 tn during last week with FR0056 (10y benchmark series) as the most actively traded. On the corporate segment, total trading volume was noted moderate amounting Rp4.14 tn with FIFA02BCN3 (Shelf Registration II Federal International Finance Phase III Year 2016; B serial bond; Maturity date: 5 Apr 2019; Rating: _idAAA) as the most actively traded bond.

Foreign ownership stood at Rp623.3 tn or 39.0% of total tradable government bond as of Apr 21^st. Considering a 2 day’s settlement, Foreigner booked net buy worth of Rp13.11 tn within the month of April while biggest buyer during the same period was banking sector which bought Rp15.35 tn. However, the biggest seller was individuals which bought SR008 during primary issuance and might have taken profit post minimum holding period.

In our view, Indonesia bond market remains to be attractive. The correction which occur last week can’t yet be consider as a divergence forming in the bond market. In our view, only if the 10y yield surpasses and close above the 7.65% level then we may consider a divergence has occurred. This week, we see that IGS market would book a weekly gain. Events which encourage us for such call are unchanged Fed rate result post FOMC meeting (however be cautious of any hawkish statement post FOMC meeting), expectation of lower than expected 1Q US and EU GDP number, expectation of lower April inflation noting the RON88 and diesel price was cut during begin of the month, a heavy incoming bids during bi-weekly auction and the 12^th Indonesia economy package publication.