YTD yield changes (bps) 23-May May May May May-14

Transcription

1 Bond ket Update 19 Debt 23 Research Handy Yunianto (6221) Bond prices fell on higher bond supply expectation Country 10 year bond yields Weekly yield (bps) YTD yield (bps) Currency Weekly currency YTD currency Inflation YoY% Thailand Philippine Vietnam ,148 21, Indonesia ,615 11, (4.6) 7.3 Review: Bond prices fell on higher bond supply expectation On average government bond prices fell during the week by 0.36%, after rebounding a week earlier by 0.41% due to lowering US Treasury yields that attracted foreign fund inflows, according to our Mandiri Sekuritas Government Bond Index (MSGI). We suspect, that the government s statement they would increase new bond sales by Rp69tn to fund 2014 budget deficit that is forecasted at 2.5% of GDP (vs. 1.7% of GDP) was behind the correction. This is in line with our view on the latest strategy report (Strategy IDR Bond ket (20ch): The yields might have limited room to fall further). Our shortening duration recommendation, so far gives an optimum result. Two of three reasons behind to go short duration was correct: 1. higher supply bond issuances and 2. The rupiah s appreciation will be limited, but we miss on third factor i.e. US Treasury yields that surprisingly still low although the tapering continues. The government s rupiah bond yield curve was mixed with short end (less than 5yr) on average falling by 7bps, while the longer tenors (more than 10yr) rose by 8bps, after the strategy report was released on 20ch. While the rupiah currency also depreciated by 1.7% to 11,615/USD as the US dollar appreciated globally during the week. Overall, the government s rupiah bond still posted gains of 6.5% or 11.1% in USD term as the rupiah still appreciated by 4.6%ytd against the US dollar. Meanwhile, on average Asia local currency government bonds also posted gains of 4.48% ytd. FIGURE 1. ON AVERAGE GOVERNMENT BOND PRICES FELL DURING THE WEEK BY 0.36%, AFTER REBOUNDING A WEEK EARLIER BY 0.41% FIGURE 2. YTD, GOVERNMENT RUPIAH BOND MARKET STILL GAINED THE MOST COMPARED TO OTHER ASIAN COUNTRIES 8.25% 8.20% 8.15% 8.10% 8.05% 8.00% 7.95% 7.90% 7.85% Yield Index (LHS) Price Return Index (RHS) Thailand Taiwan Singapore Philippines Malaysia Korea Indonesia India Hong Kong China Ons China Off ALBI (Overall) LCY Government Bond Return LCY against USD 6.5% 4.6% 4.5% 7.80% Source: Mandiri Sekuritas Estimate Source: HSBC bond index 4% 2% 0% 2% 4% 6% 8% 10% 12% YTD Total Return (USD as of 2) Page 1

2 The government will increase new bond sales by Rp69tn to fund 2014 budget deficit The government will increase new bond sales by Rp69tn to fund 2014 budget deficit forecasted at 2.5% of GDP due to shortfall in tax revenue and lower oil lifting coupled with higher fuel subsidy spending on the back of weaker rupiah and noprice hike. This is inline with our view, that budget deficit potentially at the maximum target and the financing will mostly will be raised with government bond issuances. Thus gross issuances of government bond could increase to Rp432.8tn this year (from Rp363.8tn initial target). As we wrote this report, there was three government bond issuances i.e. sukuk, first saving bond and conventional bond auction. Indonesian Government cut sukuk issuance despite of slightly higher bid Total bids on the last sukuk auction (20) rose slightly to Rp3.1tn vs. Rp2.83tn in the previous auction and Rp4.2tn average in the last seven auctions) or more than 2 times of government issuances target (Rp1.5tn). As expected, the short end tenor s 6mo SPNS still attracted the largest bid of more than Rp2.2tn or almost 73% of total bids. Meanwhile for the PBS series, the biggest bid went to the longest tenors i.e. 29yr PBS05 totaling Rp518bn, followed by 13yr PBS03 and 6yr PBS06 totaling Rp201bn and Rp107bn respectively. The government only issued two PBS Series i.e. 13yr PBS003 and 29yr PBS005, totaling Rp190bn and Rp480bn respectively or lower than its target i.e. Rp1.5tn. The average/highest yield awarded for the 13yr PBS0003 was 8.63/8.66%. While for 29 yr PBS005, average/highest yield awarded was 9.01/9.09%. Government issued Rp2.4tn for first saving retail bond, thus it still has room to issue Rp23tn for retail bond this year. After book building process 222, government finally issued the first saving bond for retail investors totaling Rp2.4tn slightly below than government target of Rp2.5tn. The bond issuances aimed to broaden domestic retail investor base, from saving society to investment society. There are two differences with the usual retail bond: (1) the retail "Saving Bond" has floating coupon rate using the LPS rate (maximum guarantee deposit rate) as reference, with the first coupon rate will be the floor interest rate i.e. 8.75%. Thus coupon rate for saving bond will be increased if LPS rate increase, while it can t be lower than 8.75% although LPS rate continued to fell. Adjustment for saving bond retail is every three months. (2) Saving bond is non tradable with tenor of 2years or slightly shorter than the usual retail bonds. While the minimum/maximum amount of buying is Rp5mn/Rp5bn. Tax for saving bond retail is the same with retail bond i.e. 15% final tax it still slightly lower than deposit tax that reached 20%. The Government targets to issue 10.3% of full target this year (or almost Rp45tn) for retail investors. As government has issued Rp19.3tn sukuk retail and Rp2.4tn saving bond retail, thus it still has room of almost Rp23tn for retail bond this year. Note that, there will be Rp11tn retail bond series 08 maturing at 15 October Lower foreign participant on conventional bonds sending average yield awarded higher slightly. Total bids in the government bond auction today reached Rp15.1tn slightly higher than in the previous auction of only Rp14.2tn, but still below the average amount of the last ten auctions of Rp25.1tn). As expected, the highest demand was for the 15yr FR71 totaling Rp5.34tn (but still slightly lower than previous auction and than historical pattern of Rp5.4tn and Rp6.8tn respectively). Government issued Rp4tn of FR71 the highest issuance series on the auction with average/highest yield awarded being 8.53%/8.57%. While other two FR series bonds auctioned i.e. 5yr FR69 and 20yr FR68, the bids reached Rp2.5tn and Rp1.4tn respectively (also lower than previous auction and than historical pattern). The government issued Rp2tn and Rp750bn for both series with average/highest yield awarded being 7.67%/7.72% and 8.64%/8.65% respectively. Total bids for the two SPNseries reached Rp5.9tn much higher than in the previous auction of Rp3.5tn, but still below the average bid this year of Rp6.8tn. The Government only issued for 9mo SPN series totaling Rp1.35tn, with average/highest yield awarded being 6.35%/6.4%. Foreign participant during the last auction fell compared with previous auction. Total bids by foreigners was reportedly at Rp4.2tn (vs. Rp5tn on previous auction). Foreign bids to total bids during the auction fell to 27.9% from 35% in the previous auction (vs. 33.8% average in the last ten auctions). While absorption rate of foreign investors also fell during the auction, as the awarded amount to total foreign bids was only 45.2% or much lower than previous auction of 78.6% (vs. 53% average in the last ten auctions). Lower foreign participation in primary market make average bond yield higher on average by 7bps during the auction compared with previous auction and dragged the government bond prices down in low trading volume last week. Page 2

3 FIGURE 3. FOREIGN BIDS TO TOTAL BIDS DURING THE AUCTION FELL TO 27.9% FROM 35% IN THE PREVIOUS AUCTION FIGURE 4. THE FOREIGN AWARDED AMOUNT TO TOTAL FOREIGN BIDS WAS ONLY 45.2% OR MUCH LOWER THAN PREVIOUS AUCTION OF 78.6% Local Bid Foreign Bid % foreign bid to total bid (RHS) 45% 40% Local Accept Foreign Accept % foreign awarded to total foreign bid (RHS) 90% 80% 35 35% 14 70% 30 30% 12 60% 25 25% 10 50% 20 20% 8 40% 15 15% 6 30% 10 10% 4 20% 5 5% 2 10% % % Source: DMO Source: DMO Government has issued more than 52% of new target bond issuances this year Thus as of 26, the government has issued Rp227.6tn gross or 52.6% of new target issuances this year. In our base calculation, on average the government should issue Rp11.4tn average per auction for the conventional bonds assuming sukuk issuances target of Rp1tn per auction, retail bonds totaling Rp23tn (from ORI), no more private placement and global bond issuances of USD3bn (from sukuk global, euro global bond and samurai bond issuances). The amount may be lower if the government issues more retail bonds, private placement or global bonds. TABLE 1. THE GOVERNMENT HAS ISSUED RP227.6TN GROSS OR 52.6% OF NEW TARGET ISSUANCES THIS YEAR Budget Deficit (Rp tn) Government budget financing 2014 (Rp tn) Budget Planned revised budget Budget deficit % of GDP Budget deficit (Rp tn) Financing Government bond nett issuances Government bond gross issuances Realized issuance as of Domestic bonds AuctionConventionalFR/VRdanTbills/ZC Retailbonds(ORI&Sukuk) 21.7 ORI Sukri 19.3 SavingBond 2.4 Domesticsukuk 9.7 Privateplacement 22.4 Global bonds 52.5 Nominal GDP (Rp tn) 10,318 10,069 GDP growth Inflation SPN 3month rate IDR against USD (avg) 10,500 11,700 Oil lifting 870, ,000 Gas lifting 1,240 1,224 Page 3

4 Government budget financing 2014 (Rp tn) Budget Planned revised budget Assumption issuance breakdown 2014 from DMO %ofgrossissuances Rptn Domestic 80.0% Auction 64.5% Non Auction 10.3% Private placement/non tradable 5.2% Foreign 20.0% Remaining sukuk issuances (11 absorbed) 11.0 Private Placement 0.0 Retail bond 22.9 Foreign Total Remaining rupiah conventional issuances Average issuance on every auction (13 auction left) Source: DMO and Mandiri Sekuritas Estimate Lower trading volume during the week, but foreigners still reported the biggest net buyer Government bond market transaction for the week was decreased with daily average around Rp8.9tn vs. Rp13.3tn last week. The 9.9yr FR0070 led by Rp6.3tn or 14.3% of total trading volume for the week, traded at (0.52% wow) yielding 7.97% (+7.76bp). According to DMO data as of 23, foreign ownership in the government bonds continued rising to Rp394.5tn or 35.8% of total outstanding (vs. 35% previous week). The biggest foreign portion to total outstanding government bond was 36.04% in 12September The biggest net seller during the week was commercial banks, which reduced their portfolio in government bonds totaling Rp7.9tn. Thus foreign fund inflows into the government bonds are Rp70.6tn ytd making foreigners the biggest net buyers. It s also higher than foreign net buy for the entire 2013 that reached Rp53.3tn. However, from Rp70.6tn net buy by foreign investors, less than 17% (Rp11.7tn) was coming from foreign central banks. It's much lower than in 2013, when foreign central banks reported net buy of more than 50% of the total foreign net buy. The second biggest net buyer ytd was insurance companies (Rp20.5tn) and central banks (Rp5.3tn). Due to tightening liquidity in banking system, commercial banks buying in government bond reported only Rp4.8tn (much lower than the same period last year of Rp17.5tn). Last year commercial banks increased their portfolio in government bonds totaling Rp42.1tn. TABLE 2. FOREIGN OWNERSHIP IN THE GOVERNMENT BONDS CONTINUED RISING TO RP394.5TN OR 35.8% OF TOTAL OUTSTANDING (VS. 35% PREVIOUS WEEK). Net Buy/(Sells) JAN FEB MAR APR 23 JANMAY 2014 Banks (excl reverse repo) (5.1) (3.0) (6.8) 4.8 BI (Incl reverse repo) Mutual Fund (3.9) (3.9) (0.7) 1.0 (0.4) Insurance Foreign Pension Fund (2.4) (0.7) (0.1) (0.3) (0.6) (0.4) Securities (0.0) (0.1) (0.0) 0.1 (0.0) 0.0 Others (1.3) 17.1 (9.7) (2.0) 4.7 Total Average Yield SUN Bond Price Return (23.1) (2.8) (0.2) 3.4 Source: DMO and Mandiri Sekuritas Estimate Page 4

5 Outlook: Continue to go defensive As we wrote in our We still believe that foreign fund inflows were the only factor that will drive bond yields move lower from the current level. Demand from onshore investors especially banks continued to decline as tightening liquidity and the yields have fallen below than 8%. Two important factors to support foreign fund inflows to rupiah bond market i.e. continuing low interest rate in global market and continuing rupiah appreciation against US dollar. We believe that both variables will be challenging this year. From global interest rate outlook, market consensus still expected that US Treasury yield will continue to increase gradually to more than 3% YE While for the rupiah currency outlook, our economist still maintain their forecast at Rp11,400/US$ by YE They believe the central bank may opt to keep the rupiah competitive by intervening in the foreign exchange market. By doing so, it can help maintain the rupiah's term of trade competitive while at the same time accumulate reserves to replace the short term placement of FX term deposit and swap. Thus we still maintain our view to go defensive with shortening duration. (See: Strategy IDR Bond ket (202014) The yields might have limited room to fall further) However we don t expect that government bond yields will rise significantly as inflation this year probably will be still low as government most likely won t increase again fuel prices. The only triggers for higher yield will be coming from foreign fund outflow, but with relatively low US Treasury yield and stable rupiah, we don t expect there will be massive outflow from foreigners. In 2014, average entry level of foreigners into rupiah government bond market was at the average yield to maturity 8.23% and average rupiah at Rp11,620USD. Thus the break even for foreign investors is rupiah at Rp12,500/USD. If we believe that rupiah still below than Rp12,000, we believe foreign outflow will minimalist, unless US Treasury will increase higher than our expectation. FIGURE 5. AVERAGE ENTRY LEVEL OF FOREIGNERS INTO RUPIAH GOVERNMENT BOND MARKET WAS AT THE AVERAGE YIELD TO MATURITY 8.23% Rp bn 30,000 20,000 10,000 (10,000) (20,000) Foregn inflow/(outflow) LHS (30,000) YTM RHS (40,000) Jul09 Jul10 Jul11 Jul12 Jul13 Source: DMO and Mandiri Sekuritas Aerage YTM % FIGURE 6. AVERAGE ENTRY LEVEL OF FOREIGNERS INTO RUPIAH GOVERNMENT BOND MARKET WAS AT THE AVERAGE RUPIAH AT 11,620%/USD Rp bn 30,000 20,000 10,000 (10,000) (20,000) (30,000) Foregn inflow/(outflow) LHS IDR RHS (40,000) Jul0910Jul1011Jul1112Jul1213Jul1314 Source: DMO and Mandiri Sekuritas 12,500 12,000 11,500 11,000 10,500 10,000 9,500 9,000 8,500 8,000 IDR/USD Page 5

6 APPENDIX 1. THE YIELD CURVE Source: Bloomberg as of APPENDIX 2. ECONOMIC DATA Key Reports Date Period Consensus Est. Actual Prior Revised ID: Inflation (YoY) 214 APR ID: Inflation NSA (MoM) 214 APR ID: Core Inflation (YoY) 214 APR ID: Exports (YoY) 214 MAR ID: Imports (YoY) 214 MAR ID: Trade Balance (US$ bn) 214 MAR $520M $673M $785M $843M ID: BI Reference Rate 814 MAY Source: Bloomberg APPENDIX 3. TRADING WISE: SELL FR70, FR27 AND FR63 AND BUY: FR26, FR42 AND FR47 Series Maturity Date Coupon Price YTM Yield Curve Spread to YC Recommendation Price Model +/bps FR % % 8.19% 18.2 DEAR FR Jun % % 6.69% 18.1 DEAR FR % % 8.16% 16.0 DEAR FR % % 7.55% 9.8 DEAR FR % % 8.82% 7.2 DEAR FR Jul % % 8.03% 6.2 CHEAP FR Jun % % 7.99% 6.5 CHEAP FR % % 8.41% 8.3 CHEAP FR Jul % % 8.38% 9.8 CHEAP FR Oct % % 5.60% 35.6 CHEAP Source: Mandiri Sekuritas Estimate Page 6

7 Mandiri Sekuritas A subsidiary of PT Bank Mandiri (Persero) Tbk Plaza Mandiri 28 th Floor, Jl. Jend. Gatot Subroto Kav , Jakarta 12190, Indonesia General: , Fax : (Debt Research), (Debt Sales) DEBT RESEARCH TEAM Handy Yunianto Aldian Taloputra Head of Fixed Income Research Economist handy.yunianto@mandirisek.co.id Leo Putra Rinaldi Ali Hasanudin Economist Credit Analyst leo.rinaldy@mandirisek.co.id ali.hasanudin@mandirisek.co.id Yulia Ansari Wisnu Trihatmojo Credit Analyst Research Assistant yulia.ansari@mandirisek.co.id wisnu.trihatmojo@mandirisek.co.id DEBT CAPITAL MARKET TEAM Dennis Reshijaya Head of Institutional Sales dennis@mandirisek.co.id R. Agung Koenoro Paul Hadi Institutional Sales Institutional Sales agung_koenoro@mandirisek.co.id paul.hadi@mandirisek.co.id Sita Arvianti Teguh Suwarno Rahmadita Fitria Institutional Sales Institutional Sales Institutional Sales sita.arvianti@mandirisek.co.id teguh.suwarno@mandirisek.co.id rahmadita.fitria@mandirisek.co.id Indri Ratnasari Mohammad Haikal Ranny Rianovita Institutional Sales Institutional Sales Institutional Sales indri.ratnasari@mandirisek.co.id mohammad.haikal@mandirisek.co.id ranny.rianovita@mandirisek.co.id SINGAPORE DEBT CAPITAL MARKET TEAM Lawrence Ong Director/Head of Singapore Branch lawrence.ong@mandirisekuritas.com.sg Chia Soo Meng Miranti Wulansari Head of Fixed Income Sales & Trading AVP Institutional Sales soomeng.chia@mandirisekuritas.com.sg miranti.wulansari@mandirisekuritas.com.sg Mandiri Sekuritas A subsidiary of PT Bank Mandiri (Persero) Tbk Plaza Mandiri, 28 th Floor Jl. Jend. Gatot Subroto Kav Jakarta Indonesia General: Fax: (Debt Research) (Debt Capital ket) DISCLAIMER: This report is issued by PT. Mandiri Sekuritas, a member of the Indonesia Stock Ex (IDX). Although the contents of this document may represent the opinion of PT. Mandiri Sekuritas, deriving its judgement from materials and sources believed to be reliable, PT. Mandiri Sekuritas or any other company in the Mandiri Group cannot guarantee its accuracy and completeness. PT. Mandiri Sekuritas or any other company in the Mandiri Group may be involved in transactions contrary to any opinion herein to make markets, or have positions in the securities recommended herein. PT. Mandiri Sekuritas or any other company in the Mandiri Group may seek or will seek investment banking or other business relationships with the companies in this report. For further information please contact our number or fax ANALYSTS CERTIFICATION: Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her views about the companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not be influenced by any part or all of his or her compensation.