Indonesia bond market closed the week with six straight gains. The IGS prices incline on the note of weaker U.S

BOND MARKET REVIEW

Indonesia bond market closed the week with six straight gains. The IGS prices incline on the note of weaker U.S. 2Q GDP number which was release post market close in previous week as well as well contained July domestic inflationary pressure which came in at 0.69% MoM or 3.21% YoY. The contained inflationary pressure also suggest that Central Bank have the opportunity to further ease its monetary policy where our house is expecting a 25bps cut in the BI Rate in 2H16. Bi-weekly auction which received a huge demand worth of Rp45.9 tn while the awarded bids was Rp18.0 tn have caused those bidders to purchase through the secondary market which have brought the prices more higher. Foreigner was noted to purchase IGS through the auction worth of approx. Rp2 tn. However, the incline was hampered by China PMI data which came in under expectation at 49.9. Profit taking occurred within days’ post bond auction with various reasoning which in our view such as profit taking as well as avoidance ahead of domestic 2Q GDP release and U.S. July labor data. Central bank issued the 2Q16 GDP growth which grew by 5.18% YoY, supported by consumption growth (both household and government consumption) while post market close the published July U.S. Labor data was relatively strong with US creating additional 255K while unemployment rate slightly incline to 4.90%.

Total trading volume at secondary market for the government segment was noted heavy amounting Rp69.02 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 Rp3.57 tn with ADMF03ACN4 (Shelf Registration III Adira Finance Phase IV Year 2016; A serial bond; Maturity date: 6 Aug 2017; Rating: _idAAA) as the most actively traded bond.

Foreign ownership stood at Rp664.2 tn or 39.3% of total tradable government bond as of Aug 4^th. Considering a 2 day’s settlement, Foreigner booked net buy worth of Rp4.93 tn within the month of Aug. During the same period, banking, insurance and pension fund companies bought Rp10.38 tn, Rp1,45 tn and Rp0.77 tn respectively.

The positive domestic economy data releases last week have been offset by a strong U.S. July Labor data. As a result, the IGS market this week started with IGS prices declining. We expect the market to move mixed this week post a six-week appreciation and may close lower or unchanged. The fluctuation of IGS market this week will be affected by Jul U.S. Retail Sales, 2Q16 EU GDP growth, China Jul, CPI, Industrial Production, Trade Balance and Retail Sales and Indonesia 2Q16 Current Account Balance. Aside from that, Indonesia government will be conducting bi-weekly sukuk auction while might also introduce the thirteen fiscal stimulus package emphasizing on trading development in e-commerce business and de-regulation in housing sector.