Maybank Weekly Bond Report - 4 Apr 16

Flows and Statement Dependent Market

BOND MARKET REVIEW

Indonesia bond market booked did move sideways as we expected however booked a significant weekly gain. The IGS market moved lower during the initial days of the week supported by two Fed members which gave a rather hawkish statement which may had made bond investors relatively cautious ahead of U.S. March labor data. As a result, incoming bids during the auction was significantly lower compared to previous conventional auction with awarded bids slightly higher compared to market close. Foreigner bids during the auction were recorded declining significantly. The turn back was when Fed Yellen gave a dovish statement which diminishes the chances of FFR hike in the month of April. Post Fed Yellen statement, buying appetite incline and results of March U.S. labor data was not seen as a treat anymore despite the result was considered to be mixed. During the week, Indonesia government introduces the eleventh economy package which emphasize in stimulating micro, small, and medium enterprises (MSME) for export activities, tax incentives for property companies which issues Real Estate Investment Trusts (REIT), Improving risk management in the seaports and Enhancing local pharmaceutical industry’s competitiveness. While the impact of such fiscal policy would be felt in the long run, in the short run, the government decided to cut RON88 and Diesel fuel price by Rp500/l each. This is expected to result in a lower inflation ahead which has fueled the strengthening of IGS prices last week. March inflation number was published by Indonesia statistics during the final day of the week which came in slightly higher and was mainly contributed by increase in the volatile foods prices. DMO office successfully issued global sukuk worth of $2,5 bn. Two series were issued last week which were SNI21 that pays an annual coupon of 3,40% annual pay for 5y tenor and SNI24 that pays an annual coupon of 4,55% for 10y tenor. Both series were issued at par with issuance size of $750 mn and $1,75 mn respectively. Ahead we believe that DMO would issue Euro and Yen denominated global bond as there is an approx. Rp45 tn room left for issuance through global bond.

Total trading volume at secondary market for the government segment was noted heavy amounting Rp74.10 tn during last week with FR0056 (5y series) as the most actively traded. On the corporate segment, total trading volume was noted moderate amounting Rp3.97 tn with ISAT01ACN3 (Shelf Registration I Indosat Phase III Year 2015; A serial bond; Maturity date: 8 Dec 2018; Rating: _idAAA) as the most actively traded bond.

Foreign ownership stood at Rp604.7 tn or 38.6% of total tradable government bond as of Mar 31^st. Considering a 2 day’s settlement, Foreigner booked net buy worth of Rp16.36 tn within the month of March which is more than a triple compared to net buy during the month of Feb. Within the same period, segment categorized as others have booked net buy worth of Rp32.44 tn as a result of SR-008 issuance.

Data publication from global and domestic would be minimal this week. However, our Buy IGS and Indon call which was initiated in the month of Feb and Mar came out to be true. We are still seeing chances of downside movement of IGS and Indon yield. We do see that foreign reserve data which will be published this week would be higher mainly due to receipt from recent Global Sukuk issuance. We believe IGS market this week will be moving sideways while prices may close slightly higher with movement highly depending on flows, official statement both global and domestically and a respond to U.S. mixed labor data.