Positive Growth for Indonesia s Bonds Market: With or Without You (QE Tapering)

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1 WEEKLY REPORT D E B T R E S E A R C H 26 MARCH 2014 Positive Growth for Indonesia s Bonds Market: With or Without You (QE Tapering) Indonesia FCLT Rating S & P Moody s Fitch Analysts Amir A. Dalimunthe (62 21) ext amirda@danareksa.com Rifki Rizal (62 21) ext rifkir@danareksa.com Please read important disclosure at the back of this report BB+ Baa3 BBB- Key Market Indicator as of 25-Mar-14 BI Rate 7.50% JCI 4,703 IDR Inflation (y-o-y)-feb % Domestic Bonds Outstanding Gov t Bonds as of 21-Mar-14 IDR 1,072.2 bn Corp Bonds as of Feb-14 IDR bn Previous Week Trading Volume Government Bonds IDR tn Corporate Bonds IDR 3.38 tn Benchmark Yield as of 25-Mar-14 FR0069 (5 year) 7.689% FR0070 (10 year) 8.185% FR0071 (15 year) 8.496% FR0068 (20 year) 8.65% Source : Bloomberg, Mid YTM Government Bond Indices as of 25-Mar-14 Price Index (Bloomberg : DGBIIDPR) Yield Index (Bloomberg : DGBIIDYD) 8.20% TR Index (Bloomberg : DGBIIDTR) Calendar of Event 27-Mar-14 US Initial (Survey : 325K Prior : 320K) 28-Mar-14 Germany CPI YoY (Survey : 1.1%; Prior : 1.2%) 1-Apr-14 Indonesia CPI YoY (Survey : NA; Prior : 7.75%) Rising 10-year UST yields As of March 21, yields on the 10-year US Treasury stood at 2.75%, up 10bps over the previous week. The increase in yields last week came on the back of the statement by Janet Yellen, the Federal Reserve chairman, that the Fed would raise its reference rate (Fed Funds Rate) after the bonds purchase program ends. The Fed reduced bond purchases by US$ 10 billion to US$55 billion in April 2014 and will also consider reducing bond purchases at each FOMC meeting in the future. However, the Fed also said that they would not raise interest rates if the unemployment rate was still above 6.5% and inflation remained below 2.5%. Currently, the US unemployment rate stands at 6.7%, with year-on-year inflation still low at 1.1%. Exhibit 1. Yield on US Treasury 10-year & US Unemployment Rate 11.0% 10.0% 9.0% 8.0% 7.0% 5.0% Jul-06 Jan-07 Jan-08 UST 10Y (RHS) Jan-09 Jul-09 Jul-10 Jul-11 Jan-12 Source : & Bloomberg Jan-13 Jan-14 US Unemployment rate 5.5% 5.0% 4.5% 3.5% 3.0% 2.5% 1.5% 1.0% Better 10-year INDON performance without QE 10-Year US Treasury yields and 10-year INDON yields should theoretically have a negative correlation, given that the US is a safe haven while Indonesia is not. However, since Quantitative Easing (QE) started in November 2008, the correlation between the two instruments has become positive. The average spread between the 10-year UST and 10-year INDON from 2005 to 2007 (or before QE) was in a downtrend, while, in contrast, in the period from 2010 to 2013, the yield spread tended to increase although not significantly. Removal of QE will cause a short-term correction because of the rebalancing process, but, in the long run, QE removal is actually an indication of an improving global economy. Furthermore, we also have to remember that prior to QE, Indonesia was not yet awarded investment grade status.. Yield US Treasury 10-tahun meningkat Yield US Treasury 10-tahun per 21 Maret 2014 tercatat 2,75%, atau meningkat 10bps dari penutupan seminggu sebelumnya. Salah satu penyebab peningkatan yield tersebut adalah rencana Janet Yellen, Ketua Federal Reserve, untuk meningkatkan interest rate (Fed Funds Rate) setelah program pembelian obligasi Fed berakhir. The Fed akan mengurangi pembelian obligasi sebesar US$10 miliar menjadi US$55 miliar untuk April 2014 dan akan mempertimbangkan untuk melakukan pengurangan di setiap FOMC meeting. The Fed juga menyatakan tidak akan meningkatkan Fed Funds Rate jika unemployment rate masih di atas 6,5% dan outlook inflasi di bawah 2,5%. Saat ini, US unemployment rate per Februari 2014 tercatat sebesar 6,7%, sementara inflasi YoY sebesar 1,1%. Exhibit 2. Fed Funds Rate & US YoY Inflation Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Dec-13 Fed Funds Rate Source : Bloomberg US YoY Inflation 5.0% 3.0% 1.0% 0.0% -1.0% % Performa INDON 10-year Membaik Tanpa QE Pergerakan yield US Treasury 10-tahun dan INDON 10-tahun secara teori memiliki korelasi negatif jika melihat fakta bahwa US merupakan negara safe haven sementara Indonesia bukan. Namun sejak dimulainya Quantitative Easing (QE) pada November 2008, korelasi antara yield kedua instrumen tersebut menjadi positif. Rata-rata yield spread antara UST 10-tahun dan INDON 10-tahun selama tahun 2005 hingga 2007, atau sebelum penerapan QE, berada dalam tren menurun; sementara setelah penerapan QE di periode 2010 hingga 2013, yield spread bergerak dengan tren cenderung meningkat walaupun tidak signifikan. Penghapusan QE akan menyebabkan adanya koreksi jangka pendek karena adanya proses rebalancing, namun dalam jangka panjang hal tersebut merupakan indikator membaiknya perekonomian global. Selain itu, perlu diingat bahwa sebelum adanya QE, Indonesia belum memperoleh investment grade. Bloomberg Ticker: DFMJ

2 Based on historical data, the increase in the Fed Funds Rate in the period had no significant impact on Indonesian USD bonds. The Fed Funds Rate increased by 300bps in the period from 2005 to 2006, and in the same period, the yield on the 10-year INDON fell 70bps while the 10-year US Treasury increased 47bps. Berdasarkan data historis, kenaikan Fed Funds Rate yang terjadi di sepanjang tahun tidak berpengaruh signifikan terhadap obligasi USD Indonesia. Fed Funds Rate mengalami peningkatan 300bps selama tahun 2005 hingga 2006, namun dalam periode yang sama, yield INDON 10-tahun mengalami penurunan 70bps sementara yield US treasury 10-tahun meningkat 47bps Exhibit 3. Yield Movement of US Treasury 10-year and INDON 10-year Exhibit 4. Fed Funds Rate & INDON 10-year Yield INDON 10Y UST 10Y 1 FFR (LHS) INDON 10Y % 5.0% % 8.0% 3.0% 8.0% Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Dec-12 May-13 Oct-13 Mar-14 Source : & Bloomberg 0.0% 1.0% 0.0% Jan-05 Jul-05 Jul-06 Jan-07 Jan-08 Jan-09 Jul-09 Jul-10 Jul-11 Jan-12 Jan-13 Jan-14 Source : Bloomberg 0.0% Exhibit5. Yearly Average of Spread INDON 10-year Over US Treasury 10-year Bps Source : & Bloomberg Other effects The 10-year IDR Government bonds yield declined by 43bps from 10.42% at the beginning of 2005 to 9.99% at the end of On the currency front, meanwhile, the rupiah strengthened relative to the USD by 2.8% to IDR9,030 per USD at the end of Efek lainnya Di sisi lain, obligasi IDR Pemerintah 10-tahun selama periode tersebut mengalami penurunan sebesar 43bps dari 10,42% di awal tahun 2005 menjadi 9,99% di akhir tahun Bukan hanya obligasi, nilai tukar Rupiah terhadap Dollar AS menguat 2,8% menjadi Rp9.030 per US$ di akhir tahun

3 Exhibit 4. Fed Funds Rate & Rupiah Exchange Rate (USD-IDR) Exhibit 5. Fed Funds Rate & IDR Governmetn Bond 10-year Yield 13,000 12,500 12,000 11,500 11,000 10,500 10,000 9,500 9,000 8,500 8,000 USDIDR FFR (RHS) Jan-05 Jul-05 Jul-06 Jan-07 Jan-08 Jan-09 Jul-09 Jul-10 Jul-11 Jan-12 Jan-13 Jan-14 6% 5% 4% 3% 2% 1% 0% IDR Gov't 10Y FFR (RHS) Jan-05 Jul-05 Jul-06 Jan-07 Jan-08 Jan-09 Jul-09 Jul-10 Jul-11 Jan-12 Jan-13 Jan-14 6% 5% 4% 3% 2% 1% 0% Source : Bloomberg Source : Bloomberg 3

4 APPENDICES Appendix 1. Government Bonds Trading March 2014 Last Trade Bonds Maturity Coupon Tenor Last Freq Vol Yield Tenor Modified Data Done (IDR bn) Class Duration Price 20-Mar-14 SPN Apr < 1yr Mar-14 SPN May < 1yr Mar-14 SPN Jun < 1yr Mar-14 SPN Jul , < 1yr Mar-14 SPNS Jul < 1yr Mar-14 SPN Sep < 1yr Mar-14 SPN Oct < 1yr Mar-14 FR Oct < 1yr Mar-14 ORI Oct < 1yr Mar-14 VR Dec < 1yr Mar-14 SPN Jan , < 1yr Mar-14 SPN Mar < 1yr Mar-14 VR Apr , yr - 5yr Mar-14 FR Jun , yr - 5yr Mar-14 SR Sep yr - 5yr Mar-14 ORI Oct yr - 5yr Mar-14 SR Feb yr - 5yr Mar-14 VR Mar yr - 5yr Mar-14 FR May yr - 5yr Mar-14 FR Sep , yr - 5yr Mar-14 ORI Oct yr - 5yr Mar-14 VR Oct yr - 5yr Mar-14 SR006 5-Mar yr - 5yr Mar-14 FR Apr yr - 5yr Mar-14 VR Sep yr - 5yr Mar-14 PBS Feb yr - 5yr Mar-14 FR May yr - 5yr Mar-14 FR Sep yr - 5yr Mar-14 FR Apr , yr - 10yr Mar-14 FR Sep yr - 10yr Mar-14 FR Nov yr - 10yr Mar-14 FR Jun yr - 10yr Mar-14 FR Jul yr - 10yr Mar-14 FR May yr - 10yr Mar-14 FR Jun yr - 10yr Mar-14 FR Jul yr - 10yr Mar-14 FR May , yr - 10yr Mar-14 FR Jul yr - 10yr Mar-14 FR Aug yr - 10yr Mar-14 FR Mar , yr - 10yr Mar-14 FR Sep > 10yr Mar-14 FR Sep > 10yr Mar-14 FR May > 10yr Mar-14 FR Jul > 10yr Mar-14 FR Feb > 10yr Sumber: Danareksa, BEI 4

5 APPENDICES Appendix 2. Government Bonds Trading March 2014 (cont d) Last Trade Bonds Maturity Coupon Tenor Last Freq Vol Yield Tenor Modified Data Done (IDR bn) Class Duration Price 21-Mar-14 FR May > 10yr Mar-14 FR Mar , > 10yr Mar-14 FR Aug > 10yr Mar-14 FR Jul > 10yr Mar-14 FR Jun , > 10yr Mar-14 FR May , > 10yr Mar-14 FR Mar , > 10yr Mar-14 PBS Feb > 10yr Mar-14 FR Jul > 10yr Mar-14 FR May > 10yr Mar-14 FR Apr > 10yr Mar-14 PBS Apr > 10yr Mar-14 FR Feb > 10yr Sumber: Danareksa, BEI 5

6 APPENDICES Appendix 3. Corporate Bonds Trading March 2014 Last Trade Bonds Maturity Coupon Tenor Rating Last Freq Vol Yield Modified Data Done (IDR bn) Duration Price 17-Mar-14 FIFA01BCN1 20-Apr idaa Mar-14 FIFA11C 26-Apr idaa Mar-14 IMFI01ACN2 18-May ida Mar-14 TAFS03A 27-May AAA(idn) Mar-14 BBTN13C 29-May AA Mar-14 IMFI04B 9-Jun ida Mar-14 BCAF01ACN2 24-Jun idaa+/aaa(idn) Mar-14 TAFS01C 7-Jul idaa Mar-14 BJBR06B 10-Jul A Mar-14 ADMF02ACN2 3-Nov idaa Mar-14 CFIN03C 8-Nov ida Mar-14 PPLN07 11-Nov idaa Mar-14 BNII01ACN1 6-Dec AAA(idn) Mar-14 ASDF02ACN2 6-Dec idaa+/aaa(idn) Mar-14 ISAT07A 8-Dec AA Mar-14 ADMF01BCN1 16-Dec idaa Mar-14 SIKMAPI01B 16-Dec A Mar-14 IMFI01ACN3 21-Dec ida Mar-14 BBRI02 22-Dec AA Mar-14 TBIG01ACN1 22-Dec AA-(idn) Mar-14 BNLI01ACN1 3-Jan idaa Mar-14 NISP01BCN1 19-Feb idaaa/aaa(idn) Mar-14 BFIN01BCN2 19-Feb A+(idn) Mar-14 WOMF05D 4-Mar AA(idn) Mar-14 AIRJ01C 13-Mar A(idn) Mar-14 BFIN02ACN1 17-Mar ida Mar-14 FIFA01ACN3 24-Mar idaa Mar-14 ADMF05D 27-May idaa Mar-14 TAFS02B 5-Jun idaa/aaa(idn) Mar-14 BPFI01B 3-Jul idbbb Mar-14 TRAC02C 5-Jul ida Mar-14 TLKM02A 6-Jul idaaa Mar-14 PNBN05 9-Nov idaa/aa(idn) Mar-14 BWPT01 16-Nov ida Mar-14 MAPI01ACN1 12-Dec idaa Mar-14 SMFP02ACN1 27-Dec idaa Mar-14 BIMF01B 9-Jan [Idr]BBB Mar-14 NISP01CCN1 19-Feb idaaa/aaa(idn) Mar-14 ASDF01BCN3 22-Feb idaa Mar-14 BTPN01ACN3 5-Mar AA-(idn) Mar-14 TAFS03B 17-May AAA(idn) Mar-14 BEXI01BCN3 23-May idaaa Mar-14 TUFI01ACN1 5-Jun idaa Mar-14 PPLN08A 21-Jun idaa Mar-14 ASDF02CCN1 27-Jun idaa Mar-14 DILD01A 9-Jul ida Mar-14 JPFA01CN1 12-Jan ida Mar-14 TAFS01BCN1 13-Feb AAA(idn) Mar-14 ASDF01CCN1 21-Feb idaa Mar-14 PRTL01 28-Feb AA-(idn) Sumber: Danareksa, BEI 6

7 APPENDICES Appendix 4. Corporate Bonds Trading March 2014 (cont d) Last Trade Bonds Maturity Coupon Tenor Rating Last Freq Vol Yield Modified Data Done (IDR bn) Duration Price 21-Mar-14 FIFA01BCN3 14-Mar idaa Mar-14 VRNA01BCN3 19-Mar-17 #N/A 2.98 #N/A Mar-14 TAFS03C 17-May AAA(idn) Mar-14 WSKT02B 5-Jun ida Mar-14 MEDC03 19-Jun idaa Mar-14 JMPD13R 21-Jun idaa Mar-14 ADHISM1CN1 3-Jul ida(sy) Mar-14 TBLA02 5-Jul ida Mar-14 BMTR01B 12-Jul ida Mar-14 BTPN01BCN2 3-Aug AA-(idn) Mar-14 BTPN01BCN2 3-Aug AA-(idn) Mar-14 APLN02 15-Aug ida Mar-14 PPGD12A 4-Sep idaa Mar-14 BNGA01BCN1 30-Oct IdAAA/AAA(idn) Mar-14 PNBN04SB 9-Nov idaa-/a+(idn) Mar-14 SIAGII02 18-Dec A-(idn) Mar-14 SMFP02BCN1 27-Dec idaa Mar-14 ADHI01ACN2 15-Mar ida Mar-14 PTPP01CN1 19-Mar ida Mar-14 AISA01 5-Apr ida Mar-14 BNII01SB 19-May idaa Mar-14 ROTI01CN1 11-Jun idaa Mar-14 LTLS01CN1 19-Jun ida Mar-14 APLN01CN1 27-Jun ida Mar-14 BNII01SBCN1 6-Dec AA-(idn) Mar-14 ANTM01ACN1 14-Dec idaa Mar-14 PPGD01DCN2 14-Feb idaa Mar-14 BBKP01SBCN1 6-Mar ida Mar-14 BVIC02SB 27-Jun idbbb Mar-14 ISAT08A 27-Jun idaa Mar-14 PNBN01SBCN1 20-Dec idaa Mar-14 BVIC03SB 27-Jun idbbb Sumber: Danareksa, BEI 7

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