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Danareksa Monthly Report 2018, 9 Feb 2018 : More Effort to Gain Return
February 09, 2018 17:53

Everybody eyes the U.S.
The Danareksa Government Bonds Yield Index (DGBI) declined from 6.22% to 6.10% in January, resulting in a total return of 1.28%. However, compared to its lowest point in January (5.96% on 16 January 2018), the DGBI rose by 18 bps in 2 weeks. This reflects a volatile period for global bonds (see Danareksa Weekly Report dated 6 February 2018: A Volatile Period). The 10-year US Treasury yield went up from 2.4% to 2.72% during the month, reaching its highest level since 2014. As a result, the spread between the UST and INDON 10 Y, or implied sovereign risk premium, narrowed in January 2018 (103bps on average vs. 121 bps in December 2017). This is in line with the low Indonesian CDS in January: 80bps on average. During this volatile period, investors were concerned by Fed movements (now with a new Governor, Jerome Powell) and U.S. Treasury financial market.

Bond issuances are an attractive way to raise funds
Indonesia has managed to keep GDP growth above 5% with relatively low inflation and a stable rupiah. In 2017, GDP growth was recorded at 5.07%, supported by brisker growth in the fourth quarter of 2017 (5.19%). The yearly inflation was 3.61% and the reference rate (BI 7DRR) was 4.25% at the end of 2017. In January 2018, BI kept its reference rate unchanged at 4.25%, projecting low 2018 inflation (3.5±1%). Up to the end of 2017, foreign holdings in Government bonds remained high. They were around 39% of the total and the proportion increased in the first month of 2018 to around 41%.
The low interest rates environment at the beginning of the year encouraged companies to issue debt instruments in January 2018. According to KSEI data as of 8 February 2018, corporate bonds issuance from the beginning of the year up to February 22, 2018, will reach IDR11.2 trillion. Issuances of Medium-Term Notes (MTN) reached IDR1.766 trillion in January 2018, up from IDR1.141 trillion in January 2017.

Govt bonds Issuance reached more than 10% in the first month of 2018
As of January 2018, The Government had collected IDR53.38 trillion or 12.88% from Government securities issuances (net). The full year target is IDR414.53 trillion. Overall, the total Government bond gross issuances reached IDR144.35 trillion consisting of IDR68.55 trillion of Government debt securities dominated in Rupiah, IDR54.17 trillion dominated in foreign currencies, and IDR21.63 trillion of domestic sovereign sharia securities. Based on the auction results in January 2018, the Government bonds supply was met with a strong demand for Government bonds.

Downward shift in the yield curve in January
According to Exhibit 1, the Government Bonds yield curve declined for all tenors, but mostly for short and medium tenors. This indicates the preference of investors for short tenors during a period of high volatility. On average, short tenors (1-3 years) dropped 11bps, medium tenors (4-7 years) declined by 14bps, while long tenors (more than 7 years) only declined by 8bps.

Trading in Govt bonds was very high in January 2018
Between Jan’17 and Jan’18, the monthly average trading in Government bonds is IDR274.55trillion, while for Corporate bonds the monthly average trading reached IDR24.06 trillion. In January 2018, trading in Government bonds reached IDR508.88 trillion, the highest since at least Jan’17 (see Exhibit 2). For Government bonds, the most traded bonds in January were FR0075 (IDR63.50 trillion), followed by FR0064 and FR0072 with trading of IDR52.70 trillion and IDR37.98 trillion, respectively. Meanwhile, the most traded Corporate bond in January was Global Mediacom Shelf Registration Bond I Phase I 2017 series A with trading of IDR1.1 trillion, followed by Panin Bank Shelf Registration Subdebt II Phase II 2017 with trading of IDR692 billion.