·         The government will today auction the 1-yr t-bill, 5-yr, 10-yr, 15-yr and 30-yr bonds with indicative target of Rp8tn. Year to date, the government have raised Rp302tn or around 92% of the revised full year gross issuance target (Rp326.9tn).

·         Volatility remained in the market. Issues on Fed’s tapering continued to affect the global market. On the domestic front, the highly anticipated current account deficit data finally released last week showing less favorable improvement at USD8.4bn (3.8%of GDP).  The slow adjustment of the current account triggered the central bank to raise the BI rate further by 25bps to 7.5%. BI stated its concern that the consumption level and the credit growth remained strong that may be the reason why the pace of imports stayed high. However with the 175 bps hike in the BI rate this year should be able to reduce imports as the impact of the rate hike is usually lagging. Thus we do not expect another BI rate hike this year.

·         Fed’s Janet Yellen recently stated that she would maintain stimulus until the economy shows more strength. However this does not seem to significantly impact the market as the rupiah stay weak in the range of Rp11,590-11,630/USD. Yields rose across the board particularly the long end of the curve, while pressure on the shorter term were much softer. The 10-yr benchmark yield rose to 8.37%, after reaching as high as 8.44%.

·         Despite the heightening pressure on bond yields, foreigners only slightly reduced ownership in bonds. In the past few days, foreign investors reduced ownership by Rp0.85tn, brought the current level of foreign ownership at Rp318.7tn (as per Nov14). However in November month to date, foreign ownership still recorded a rise by Rp0.56tn.

·         In the previous bond auctions (Nov 6), demand was lower at Rp11.7tn. The government absorbed as much as its indicative target at Rp8tn. We expect today’s yields will be slightly higher particularly on the long end of the curve.