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Weekly Update
Danareksa Weekly Report 2018, 6 Feb 2018 : A Volatile Periode
February 06, 2018 15:44

Fed rate left unchanged
During Yellen’s last meeting as Fed Chair (31 January 2018), the FOMC unanimously decided to maintain its benchmark rate in the range of 1.25 and 1.5 percent hoping to continue support for job growth and to create higher inflation. On a 12 months basis, inflation besides food and energy remains below 2 percent. Overall inflation is also below 2 percent. On Thursday January 18th, 2018 the Labor Department announced that the number of people filing for unemployment benefit dropped to its lowest level in 45 years. The economy grew 2.3 percent in 2017. The Fed’s outlook on the economy is upbeat with expected faster growth, partly due to the effect of the US$1.5 trillion tax cut. Although the reference rate was left unchanged in January, there is a strong signal for a rate hike in March, which as of February 6th, has a 83.5 percent probability according Bloomberg WIRP survey.

From the end of December to last Friday, the 10 year US Treasury yield climbed by 44 basis points, reaching 2.84 percent from 2.4 percent. Furthermore, at 2.84 percent, the 10-year treasury yield is at its highest level since 2014. Throughout 2018, Danareksa’s IDR Government Bonds Yield Index tended to move sideways. Starting at 6.22 percent in December, the yield dipped to its lowest level of 5.95 percent before climbing back to 6.08 percent last Friday. This demonstrates investors’ confidence still remain in Indonesia, which is expected to improve further in 2018.

Continued high demand for short tenors
The Government held its latest SBSN auction on 30 January 2018, auctioning the following series: SPN03180430, SPN12190131, FR0063, FR0064, and FR0065. At the auction, which had an indicative target of IDR17 trillion and maximum target of IDR25.5 trillion, incoming bids reached IDR47.23 trillion. As in the previous auction, investors were still interested in short tenor bonds such as SPN12190131 which received the most incoming bids of IDR16.03 trillion, followed by SPN03180430, FR0063, and FR0064 which received IDR10.50 trillion, IDR9.54 trillion, and IDR8.18 trillion of incoming bids each. By comparison, FR0065, the benchmark 15-year Government bond and the longest-tenor in the auction, received incoming bids of only IDR2.99 trillion.

From the total incoming bids, the total amount of winning bids reached IDR17.55 trillion – mostly of short tenors. In the January 2018 auctions, the Government collected IDR53.38 trillion. This amount represents 12.88% of the total targeted net issuances in 2018.
The Government will conduct another auction on 5 February 2018 for the following SBSN series: SPNS07082018, PBS016, PBS002, PBS017, PBS012, and PBS004. The total indicative target for the upcoming auction is IDR8 trillion.

Foreign ownership remains high
Thus far in 2018, foreign holdings of Indonesia’s government bonds remains strong. On February 1st, total foreign ownership amounted to IDR864 trillion, up by IDR28.12 trillion from the end of last year. In proportion, foreign investors hold 41.10% of the total outstanding government bonds, up from 39.82% in December last year. Despite the expectation of a Fed rate hike, foreign investors are still confident in Indonesian bonds. Among domestic investors, Banks still hold 26.06% of the total outstanding, amounting to IDR548.13 trillion. Pension funds, mutual funds, and insurance companies hold 9.66 percent, 4.98 percent, and 7.32 percent, respectively (IDR203.06 trillion, IDR104.64 trillion, and IDR153.99 trillion).