Daily Commentary 16-Jan: As expected, total bids were still strong on the second bond auction this year, reaching Rp55.7tn (vs.Rp55.3tn previous auction). Foreign bids lower slightly compared to previous auction i.e Rp10.2tn (vs. Rp12.6tn), or reported 18.4% of total bids (vs. 22.8% previous auction and 21.4% average per auction in 2018). The Government issued Rp27.8tn (vs. Rp15tn initial target and Rp28.3tn previous auction) with average yield awarded still in line with our fair yield forecast. Foreign bids awarded were at Rp6.3tn or 61.8% of foreign bids (vs. Rp8.7tn or 69.2% of foreign bids on previous auction, but still much higher than than the average foreign bids’ absorption per auction last year of 51.6%).

Thus, ytd the Government has already issued Rp109.7tn gross or 13.3% of the full year issuance target. The Government will do the same front-loading policy strategy to finance the budget deficit in 2019, as expected, by issuing bonds ranging 50-60% of government gross issuance target in 1H2019 (vs. 59.7% realization in 1H2018)

After bond auctions, the benchmark bond yields continued to increase slightly with the 5yr FR77 traded at 100.8 (-0.2%), yielding 7.93% (+3.5 bps); the 10yr FR78 at 101.7 (-0.2%), yielding 8.0% (+3.6 bps); the 15yr FR68 at 99.8 (-0.4%), yielding 8.40% (+5.2 bps), and the 20yr FR79 at 99.3 (-0.5%) yielding 8.45% (+5 bps). Based on PLTE data, trading volume in the secondary market has reached Rp24.6tn, with foreign reported at net inflow of Rp3.4tn. Specific for benchmark series, foreign was reported at net inflow by almost Rp4tn. Foreign ownership in government bond based on settlement date as of 14 Jan was Rp901.5 tn (inflow Rp8.3 tn ytd), or 37.7% of total outstanding.

Meanwhile, JCI was continuing up by 1.2% to 6,408.8 (+3.5% ytd) with foreign investors keep reported at net inflow of Rp1.9tn (inflow of Rp6.4tn ytd). Rupiah also appreciated by 0.3% to Rp14,090/USD (appreciated 2.1% ytd) on Tuesday.

The only domestic economic data released was Dec trade data that reported deficit USD 1.1 bn (vs. -0.24bn Dec 2018 and – 2bn in Nov18). It was the third straight month of trade gap, as exports dropped 4.64%yoy while imports increased 1.16%yoy. Our economist estimate 4Q18 CAD to reach -3.7% of GDP, generating a FY18 current account deficit of -3.1%. However, he believe BI will not change its policy rate in this week’s governor board meeting, with its earlier statement saying the 4Q18 financial account surplus is expected to plug the CAD.

On the global market, US stock markets closed higher with Dow Jones increased 0.65% to 24,066 and S&P 500 up 1.07% to 2,610 amid optimism about Chinese stimulus. Meanwhile, the bond market was quiet despite the gains in the stock market, as the 2yr yield and 10yr yield both ended unchanged at 2.52% and 2.71%, respectively. LWTI crude oil settled +3.2% to $52.11/bbl. (Source: Mandiri Sekuritas)


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