Maybank Weekly Bond Report - 23 May 16

A Week of Confusion

BOND MARKET REVIEW

Indonesia bond market closed with a weekly loss as global and domestic data release as well as officials statements which we believe would be favorable for IGS seem to move in contrast with our view. Several global factors which have contributed negatively towards the IGS market in our view are U.S. Apr CPI which beats expectations, Fed Williams and Fed Lockhart statement which sees at least two rate hikes this year, FOMC May minutes release which shows possibility of a rate hike in Jun if upcoming economy data moves towards their objective. The Fed Fund Implied probability shot up to around 28% from just 4% prior to the FOMC release; Eurozone Apr CPI which came in line with expectation while China’s industrial production and retail sales growth in April declines. Domestically, Indonesia statistics issued Apr trade balance number which shows a widening surplus figure to $667 mn. The widening surplus was mainly contributed by higher CPO exports due to inclining CPO prices. However, we see that trade balance surplus would narrow or carrying a deficit potential in coming months due to higher imports ahead of the Eid Al Fitr. Central Bank Board of Governor meeting during the week decided to leave their reference rate at 6.75%. These domestic data release could be considered offsetting the global negative sentiments. Yet, selling pressure during the week can’t be resisted. As a result, IGS prices closed lower compared to last week closing price. Sukuk auction results were relatively good as it received Rp14.51 tn bids while awarded Rp6.51 tn.

Total trading volume at secondary market for the government segment was noted heavy amounting Rp57.41 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 Rp3.53 tn with NISP02ACN1 (Shelf registration II Bank OCBC NISP Phase I Year 2016; A serial bond; Maturity date: 21 May 2017; Rating: _idAAA) as the most actively traded bond.

Foreign ownership stood at Rp621.9 tn or 38.5% of total tradable government bond as of May 19^th. Considering a 2 day’s settlement, Foreigner booked net sell worth of Rp3.62 tn within the month of May while biggest buyer during the same period was insurance sector which bought Rp5.91 tn due to liaising with new OJK regulation that Insurance companies should have IGS proportion approx. equal or above 20% of total investment asset.

Economic data release this week would be minimal both globally as well as domestically. There will be bi-weekly bond auction as well this week. Hence this week, we see that IGS prices may close slightly lower supported by minimal market sentiment and confusion of where IGS prices may head from current point. Investor taking a long position this week or holding on to their long position should try to determine the chances of S&P hiking their rating of Indonesia sovereign to investment grade and whether the tax amnesty bill would be passed by legislative at a timely manner.