Daily Commentary (18-Oct): INDOGB is continuing its rally with almost all benchmark bonds closed positively, sending bond yields lower on Thursday. The 10yr FR64 was trading at 84.4 (+0.6%), yielding 8.54% (-9.1 bps); the 15yr FR65 at 82.5(+0.6%), yielding 8.77% (-6.5 bps); and the 20yr FR75 at 86.6 (+0.6%), yielding 8.96% (-6.9 bps). The 5yr FR63 was trading flat at 89.8, yielding 8.36% (+0.3 bps).
The bond rally happened on solid trading volume, reported at Rp19.6tn in the secondary market. According to PLTE data, foreign keeps net buying INDOGB, totaling Rp1.3tn – mostly from non-benchmark series. Specific for benchmark series, foreign is still posting net buy of Rp294.3bn. According to the latest bond fund flows data from DMO website based on settlement date of 17 Oct 2018 (reflecting trading on 15-Oct), foreign ownership in government bond was reported at Rp848.7tn (outflow of Rp2.2tn mtd and inflow of Rp12.5tn ytd) or 37% of total outstanding.
JCI fell 0.4% to 5,845.2 (-2.2% mtd or -8 % ytd), with foreign reported at net outflow by only Rp0.1tn (outflow of Rp5.1 tn mtd or -Rp56.3 tn ytd). Meanwhile, rupiah depreciated 0.29% to Rp15,194/USD (depreciated 1.95% mtd or -12% ytd) against USD.
We view positively the bond supply outlook, as budget deficit outlook this year might be lower, ranging 1.83-2.04% of GDP (vs. initial target of -2.19% of GDP), because revenue collection exceeds estimates. With the Government having already issued Rp667.3tn- gross ytd (as of 16-Oct), and with the current sukuk and conventional averages per auction, then the Government might finish issuance target on Nov 2018 (or no more auction in Dec 2018). According to Bloomberg, there’s also private placement program on Thursday totaling Rp3tn – it might also lessen supply pressure from auctions program.
On the global market, US stock tumbled again, US Treasury gained on safe haven motives, oil price continued to lower and DXY index rebounded on Thursday. The S&P500 index fell 1.4%. The 10yr UST yields fell 3 bps to 3.17%. WTI crude oil continued to decrease by 1.5% to 69.7 USDBRL. Last but not least, the Dollar index rose 0.4%, hitting the highest since 9-Oct. (Source: Mandiri Sekuritas)