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Weekly Update
Danareksa Weekly Report 2018, 03 April 2018 : Trailing the Decline in Global Yields
April 04, 2018 07:40

The Government bonds rallies
After the Fed funds rate was increased by 25bps to 1.75% on 21 Mar 2018, the yield on the 10-year US Treasury curve fell from 2.89% to 2.74% at the end of last week (29 Mar 2018). A similar trend was also seen in some other countries such as Germany and the UK. At the same time, the 10-year German bond yield edged down from 0.59% to 0.49%, while the 10-year UK bond yield dropped to 1.35% from 1.53% on 21 Mar 2018. Meanwhile, in the domestic bonds market, Government bond prices headed higher last week and yields declined. Last week, the Danareksa Government bonds yield index fell by 14bps to end the week at 6.33%. Hence, the total return YTD is 0.27% - the first positive YTD return since 27 Feb 2018. Meanwhile, foreign holdings of tradable Government bonds continued to increase. As of 29 March 2018, foreign holdings reached IDR858.79 trillion (39.31%) or up by IDR15.24 trillion from IDR843.55 trillion (38.98%) on 23 Mar 2018.

Change in investor preferences
The latest SUN auction was held on 27 Mar 2018 for the following series: SPN03180628, SPN12190314, FR0064, FR0065, and FR0075. Total incoming bids at the auction reached IDR35.57 trillion or down from IDR46.47 trillion in the previous SUN auction on 13 Mar 2018. As was the case in the previous SUN auction, the largest incoming bids at the latest auction were for FR0064, reaching IDR15.28 trillion. However, the latest SUN auction was different to the previous SBSN auction in respect to the investor preferences. Whereas investors preferred short tenors to medium and long tenors in the previous SBSN auction, in the latest SUN auction investors expressed a preference for both short tenors and medium tenors. From the total indicative target of IDR17 trillion, the total winning bids at the latest auction reached IDR20.70 trillion , slightly lower than the previous SUN auction’s IDR23.45 trillion. The most winning bids were for FR0064 (IDR8.45 trillion), up from IDR7.8 trillion in the previous SUN auction, followed by the SPN series and lastly FR0075. However, there were no winning bids for the FR0065 series. All in all, Government bond issuances in the first quarter of 2018 reached IDR210.98 trillion, exceeding the target of IDR194.50 trillion.

The next auction will be held on 3 Apr 2018 for the following series: SPNS04102018, PBS016, PBS002, PBS017, PBS012, PBS004 and PBS015. The total indicative target for this auction is IDR8 trillion. According to DJPPR’s website, the total target for Government bond issuances in the second quarter of 2018 is IDR151.27 trillion.