Another Maximum Bond Issuance Due to Strong Auction Demand

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Daily Commentary (6-Nov): As expected, demand in the latest auction on Tuesday remained solid, almost 6 times the Government’s initial target (vs. 4.8 times in the previous auction). The candidate benchmark series for next year, i.e. 5yr FR77 and 10yr FR78, still attracted high demand, totaling Rp15.1tn and Rp16.6tn, respectively. Foreign bids also remained solid at Rp16.6tn (vs. Rp16.4tn in the previous auction).

With solid demand, the Government (again) maximized issuances to Rp20tn with the average/highest yields awarded slightly lower than our fair yield forecast. Foreign awarded to foreign total bids was reported at only 26.8% (vs. 49.7% in the previous auction). Historically, lower foreign bid absorption during an auction will push trading volume up, as foreign will chase bonds in the secondary market.

According to PLTE data, trading volume in the secondary market was up to Rp37tn, with foreign posting a significant net buy of Rp6tn on Tuesday, – mostly for benchmark series (+Rp3.3tn). All the benchmark bond series continued to rally after the auction, as the 5yr FR63 was traded at 91.3 (+0.5%), yielding 7.96% (-13.9 bps); the 10yr FR64 at 86.8 (+1.1%), yielding 8.14% (-15.4 bps); the 15yr FR65 at 84.8 (+1.1%), yielding 8.46% (-12.3 bps); and the 20yr FR75 at 89.3 (+1%), yielding 8.64% (-10.7 bps).

The Government also did private placement on 6-Nov totaling Rp6tn. Thus, the Government has already issued Rp748.9tn – gross ytd or almost 94% of the full year target. We still maintain our view that the Government might finish its issuance target in Nov-2018 (thus no more auctions in Dec 2018), as the budget deficit projection has become smaller to -1.9% of GDP.

JCI was also up slightly by 0.1% to 5,923.9 (+1.6% mtd or -6.8% ytd) and foreign investors have still kept net inflow of Rpp1.1tn (inflow of Rp4.3tn mtd but still outflow of Rp50.3tn ytd). Meanwhile, rupiah appreciated significantly by 1.2% to Rp4,804/USD (appreciated 2.6% mtd or depreciated 9.1% ytd).

On the global market, US stocks erased pre-market losses to open higher, as investors awaited the results from the US midterm elections. Dow Jones increased 0.68% to 25,635 and S&P 500 was up 0.63% to 2,755.4. The US Treasury prices ticked slightly lower, with the 2-yr yield and 10-yr yields each adding a basis point to 2.91% and 3.21%, respectively. (Source: Mandiri Sekuritas)

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