Looks Ahead to A Bright Future

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Country INDONESIA Country Rating S & P (LTLC) BB+ Moody’s (LTLC) Baa3 Fitch (LTLC) BBB-Analysts Yudistira Slamet +62-21-29555777 ext. 3400 yudistiras@danareksa.com Amir A. Dalimunthe +62-21-29555777 ext. 3405 amirda@danareksa.com Rifki Rizal +62-21-29555777 ext. 3404 rifkir@danareksa.com Ayesha Ardelia +62-21-29555777 ext. 3406 ayesha@danareksa.com Melissa Hartono

Several external factors that will shape Indonesia’s domestic bond market

in 2015 are QE by the European Central Bank, the Fed Funds rate in the US,

and the expectation that oil prices will remain relatively low. The fact that the

need for bond issuances will not significantly increase compared to last year

and the government’s front loading strategy at government bond auctions

may potentially reduce the supply of government bonds in 2H15, thus driving

bond yields further down. Meanwhile, inflation is expected to be subdued at

around 5.02% at the end of 2015. This will give room to Bank Indonesia to cut

its benchmark interest rate (the BI rate) to 7.5% by the end of 2015. On the

global front, however, the Fed Funds rate is predicted to increase in 2016. The

10-year yield curve is predicted to reach 7.7% at the end of the first semester

of 2015. After that, it is expected to decline to 7.33% by the end of 2015.

Looks Ahead to A Bright Future

Country INDONESIA Sovereign Rating LT Foreign S & P BB+ Moody’s Baa3 Fitch

BBB-Market size in Dec 2014

Goverment Bond IDR 1209.96 tn

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Indonesia Bonds Market 2014

Penurunan Yield Didominasi Demand Investor Asing

Selama 1Q14, yield obligasi Pemerintah berada dalam tren penurunan yang cukup signifikan. Hal ini dikarenakan minat investor global terhadap aset yang memiliki tingkat risiko yang lebih tinggi meningkat sejak awal tahun 2014. Setelah mengalami penurunan, yield obligasi benchmark Pemerintah berada dalam tren meningkat dengan stabil selama kuartal II hingga akhir kuartal III.

Decline in Yields Due to Demand from Foreign Investors

In 1Q14, the yield on government bonds showed a significant downward trend. This owed to several factors. First, global investor appetite for riskier assets increased at the beginning of 2014. From 2Q14 until the end of 3Q14, the government benchmark bond yield tended to increase again but at a stable rate.

Exhibit 1. Indonesian Government Benchmark Bonds Yield

7.25% 7.75% 8.25% 8.75% 9.25% 9.75% 15-Ja n 29-Ja n 12-Fe b 26-Fe b 12-M ar 26-M ar 9-Ap r 23-Ap r 7-Ma y 21-M ay 4-Ju n 18-Ju n 2-Ju l 16-Ju l 30-Ju l 13-Au g 27-Au g 10-Se p 24-Se p 8-O ct 22-O ct 5-N ov 19-N ov 3-D ec 17-D ec

FR0069 - 5yr FR0070 - 10yr FR0071 - 15yr FR0068 - 20yr

Source: Bloomberg

Pertumbuhan kepemilikan asing di obligasi Pemerintah yang cukup signifikan menjadi faktor utama yang menyebabkan yield obligasi menurun sejak awal 4Q14. Namun, yield obligasi Pemerintah kembali meningkat pada akhir November akibat BI meningkatkan tingkat suku bunga acuan BI Rate untuk mengantisipasi tingginya laju inflasi akibat kenaikan harga BBM bersubsidi.

Yield Curve Obligasi IDR Pemerintah Flattening

Secara umum, yield curve obligasi Rupiah Pemerintah Indonesia mengalami downward shift pada semester pertama tahun 2014 dibandingkan dengan posisi di akhir tahun 2013, dengan penurunan yield curve sebesar 29bps. Hal berbeda terjadi pada kuartal IV, yield curve tenor pendek meningkat sementara tenor panjang mengalami penurunan. Perbedaan tren tersebut menyebabkan yield slope (spread antara yield curve 2- dan 10-tahun) semakin rendah atau yield curve mengalami flattening.

The significant increase in foreign holdings of government bonds led to the decline in government bond yields at the beginning of 4Q14. However, after the increase in the BI rate to 7.75% to anticipate higher inflation as a result of government hikes in subsidized fuel prices, government bond yields started to climb again at the end of November.

Flattening of the Government Bonds Yield Curve

In general, the government bonds yield curve experienced a downward shift in 1H14. Compared to its position at the end of 2013, the yield curve was down about 29bps. However, in 4Q14, the short-term yield curve increased while the long-term yield curve declined. This resulted in flattening of the yield curve.

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Kepemilikan Asing Meningkat Signifikan

Membaiknya kondisi perekonomian AS berpotensi mendorong The Fed untuk meningkatkan suku bunga acuan. Kenaikan Fed Funds Rate akan menyebabkan required yield investor global mengalami peningkatan, sehingga dalam jangka panjang investor akan mencari instrumen investasi yang menawarkan potensi return & risk yang lebih agresif. Instrumen dengan yield yang menarik umumnya berasal dari negara-negara EM, termasuk Indonesia. Kepemilikan asing di obligasi korporasi tumbuh pesat, terutama pada semester kedua, yakni sebesar 43,57% dari IDR14,03 triliun di akhir 2013 menjadi IDR20,14 triliun pada akhir 2014. Sementara di obligasi Pemerintah, kepemilikan investor asing meningkat secara perlahan dari IDR323,65 triliun menjadi IDR461,3 triliun atau tumbuh sebesar 42,53% selama tahun 2014.

Foreign Ownership Increased Significantly

The improvement in the US economy pushed the Fed to raise interest rates. In turn, this encouraged investors to invest in instruments with higher risk/higher return profiles, such as those in Indonesia. As such, foreign ownership in government and corporate bonds increased significantly in 2014. Foreign ownership of corporate bonds grew rapidly, especially in 2H14, by 43.57% from IDR14.03 trillion at the end of 2013 to IDR20.14 trillion at the end of 2014. For government bonds, foreign ownership rose from IDR323.65 trillion to IDR461.3 trillion or up 42.53% in 2014.

Exhibit 4. Foreign Ownership

30% 31% 32% 33% 34% 35% 36% 37% 38% 39% 40% 300 320 340 360 380 400 420 440 460 480 500 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 12 13 14 15 16 17 18 19 20 21 22

Government Bonds Corporate Bonds

Exhibit 2. IDR Government Bonds Yield Curve

5.50% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% 9.50% 0 5 10 15 20 25 30 4Q13 1Q14 2Q14 3Q14 4Q14

Source: Danareksa Estimates

Exhibit 3. Spread between 2- and 10- Yield Curve

50 70 90 110 130 150 170 30-D ec 14-Ja n 29-Ja n 13-Fe b 28-Fe b 15-M ar 30-M ar 14-A p r 29-A p r 14-M ay 29-M ay 13-Ju n 28-Ju n 13-Ju l 28-Ju l 12-A u g 27-A u g 11-Se p 26-Se p 11-O ct 26-O ct 10-N ov 25-N ov 10-D ec 25-D ec

bps

IDR tr

illion

IDR tr

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Exhibit 5. Corp Bonds Issuance by Rating AAA 22.39% AA+ 29.09% AA 11.23% AA-11.17% A+ 3.29% A 13.02% A-7.00% BBB+ 1.71% BBB 1.11% Source: KSEI AAA 40.90% AA+ 20.03% AA 13.42% 8.66% AA-A+ 3.46% A 12.96% BBB 0.55% 2013 2014

Penerbitan Obligasi Korporasi Tidak Bervariasi

Berdasarkan peringkat (rating), penerbitan obligasi korporasi di tahun 2014 kurang bervariasi dibandingkan dengan tahun 2013. Hanya obligasi dengan peringkat AAA yang mengalami peningkatan secara proporsi maupun nominal yang cukup signifikan dari hanya 22,39% pada 2013 menjadi 40,90% pada tahun 2014. Secara keseluruhan, penerbitan obligasi korporasi berdasarkan peringkat mengalami penurunan.

Salah satu faktor yang menyebabkan turunnya penerbitan obligasi korporasi adalah yield obligasi Pemerintah yang masih relatif tinggi. Rendahnya penerbitan obligasi mengakibatkan untuk pertama kalinya pada sejak tahun 2009, pada semester pertama tahun 2014 nilai obligasi korporasi yang jatuh tempo lebih besar dari nilai penerbitan obligasi baru.

Less varied issuances of corporate bonds

Based on rating, issuances of corporate bonds were less varied in 2014 than in 2013. In 2014, no A- or BBB+ corporate bonds were issued. Overall, the issuance of corporate bonds based on rating declined. The largest decline was seen in AA+ rated bonds which dominated issuances in 2013 but only accounted for 20.03% of issuances in 2014 or down by 9%.

One of the factors behind lower issuances of corporate bonds in 2014 was the still relatively high yield on government bonds. Only corporate bonds with AAA ratings saw a significant increase, accounting for 40.90% of issuances in 2014, or up from only 22.39% in 2013. Due to the low issuance of corporate bonds, the maturing corporate bonds exceeded new bond issuances in 1H14 - the first time this has happened since 2009.

Penerbitan Obligasi Sektor Finance Tetap Tumbuh di 2014

Penerbitan obligasi per sektor secara umum cenderung mengalami penurunan. Seperti penerbitan obligasi untuk sektor Banking dan Property & Cons yang sama-sama mengalami penurunan persentase penerbitan menjadi 25,36% dan 7,15% di tahun 2014. Beberapa sektor yang sebelumnya terlihat memiliki kontribusi terhadap penerbitan obligasi korporasi pada tahun 2013, pada tahun 2014 terlihat menurun drastis seperti pada sektor transportasi serta mining oil and natural gas.

Proporsi penerbitan selama tahun 2013 maupun 2014, didominasi oleh sektor mutlifinance dengan persentase masing-masing sebesar 38,82% dan 41,62%. Dominasi sektor multifinance selama dua tahun berturut-turut ini menunjukkan fleksibilitas Perusahaan dalam menyesuaikan tingkat suku bunga yang tinggi dengan biaya pendanaan yang dapat ditanggung perusahaan. Sedangkan sektor lain yang pada tahun 2014 memiliki proporsi penerbitan yang lebih besar dari pada tahun 2013 juga terjadi pada consumer goods, telecommunication, retail, dan fertilizer.

Issuances of Multi Finance Bonds Still Increased in 2014

Bond issuances variety by sector also declined in 2014. Most notably, the issuance of bonds for the Banking and Property & Construction sectors declined to 25.36% and 7.15% of total issuances in 2014. Bond issuances in certain sectors such as transportation and mining & natural gas declined drastically in 2014.

The multifinance sector dominated corporate bond issuances in both 2013 and 2014, accounting for 38.82% and 41.62% of the total issuances in the respective years. The dominance of the multifinance sector in two consecutive years demonstrates the flexibility of these companies in adjusting their lending rates with their cost of funds. Meanwhile, other sectors which saw an increase in their share of bond issuances in 2014 compared to 2013 were the consumer goods, telecommunications, retail, and fertilizer sectors.

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Kenaikan harga BBM subsidi dan inflasi

Di dalam negeri, kenaikan harga BBM bersubsidi pada bulan November 2014 sangat berpengaruh terhadap yield obligasi Pemerintah. Kenaikan harga BBM bersubsidi dapat memicu tingginya inflasi dan pelemahan nilai tukar Rupiah. Bank Indonesia pada akhirnya meningkatkan suku bunga menjadi 7,75% pada 18 November 2014. Selain itu, nilai tukar Rupiah yang melemah dapat menyebabkan terjadinya foreign outflow dari pasar obligasi Indonesia.

Hikes in subsidized fuel prices and inflation

Domestically, the hikes in subsidized fuel prices in November 2014 had a large impact on government bond yields. This is because hikes in subsidized fuel prices can result in higher inflation. In response, Bank Indonesia hiked its benchmark SBI rate to 7.75% on 18 November 2014. Meanwhile on the currency front, the weaker rupiah can also lead to outflows of foreign funds from Indonesia’s bonds market.

Exhibit 6. Corp Bonds Issuance by Sector

Financial Company 38.82% Banking 27.30% Property & Construction 11.10% Infrastructure 9.41% Transportasi 3.59%

Mining Oil & Natural Gas 2.56% Consumer Goods 2.39% Others 4.83% Source: KSEI Financial Company 41.62% Banking 25.36% Property & Construction 7.15% Telco 5.41%Consumer Goods 4.87% Infrastructure 4.33% Retail 4.33% Fertilizer3.68% Others 3.25% 2013 2014

Exhibit 7. Macroeconomic Effect on Bonds Market

7.25% 7.50% 7.75% 8.00% 8.25% 8.50% 8.75% 9.00% 9.25% 3.5% 4.5% 5.5% 6.5% 7.5% 8.5% 9.5% 01-Ja n 16-Ja n 31-Ja n 15-Fe b 02-M ar 17-M ar 01-Ap r 16-Ap r 01-M ay 16-M ay 31-M ay 15-Ju n 30-Ju n 15-Ju l 30-Ju l 14-Au g 29-Au g 13-Se p 28-Se p 13-O ct 28-O ct 12-N ov 27-N ov 12-D ec 27-D ec

Inflasi (LHS) Yield Index BI Rate

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Perdagangan obligasi tahun 2013 lebih kondusif

Exhibit 8 menampilkan perbandingan yield spread range di tahun 2013 dan 2014 yang diperoleh dari selisih antara rata-rata yield spread maksimum dan rata-rata yield spread minimum pada beberapa periode observasi. Yield spread merupakan rentang perbedaan yield masing-masing seri obligasi pemerintah yang ada di pasar dengan tingkat theoretical yield (tingkat yield wajar). Dari dua grafik ini dapat dilihat bahwa yield spread di tahun 2014 lebih lebar dibandingkan tahun sebelumnya sehingga dapat dikatakan kondisi pasar obligasi pemerintah lebih liquid dan kondusif di tahun 2013. Yield spread tertinggi di tahun 2014 maupun 2013 dimiliki oleh seri obligasi bertenor pendek, yaitu FR27 dan yield spread di kedua tahun cenderung lebih besar pada obligasi bertenor pendek. Semakin lebar yield spread obligasi, maka proses price-matching untuk terjadinya traksaksi relatif lebih sulit dan begitu pula sebaliknya

The bonds market was healthier in 2013

Exhibit 8 shows a comparison of the yield spread range in 2013 and 2014 derived from the difference between the average of the maximum yield spread and the average of the minimum yield spread in certain observation periods. The yield spread is the yield difference for each government bond series traded in the market with the theoretical yield (fair yield). From the two graphs, it can be seen that the yield spread is wider in 2014 than in 2013, implying that the bonds market was more liquid and healthier in 2013. The highest yield spread in 2014 and 2013 was on the FR27 short tenor bond, and the yield spread in both years tended to be larger for bonds with short tenors. The wider the yield spread on a bond, the more difficult the price-matching process to conduct a transaction, and vice versa.

Exhibit 8. Yield Spread Range Average in 2013 & 2014

0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 FR 00 26 FR 00 27 FR 00 30 FR 00 55 FR 00 60 FR 00 28 FR 00 66 FR 00 32 FR 00 38 FR 00 48 FR 00 36 FR 00 31 FR 00 34 FR 00 53 FR 00 61 FR 00 35 FR 00 43 FR 00 63 FR 00 46 FR 00 39 FR 00 44 FR 00 40 FR 00 37 FR 00 56 FR 00 59 FR 00 42 FR 00 47 FR 00 64 FR 00 52 FR 00 54 FR 00 58 FR 00 65 FR 00 45 FR 00 50 FR 00 57 FR 00 62 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 FR 00 27 FR 00 30 FR 00 55 FR 00 60 FR 00 28 FR 00 66 FR 00 32 FR 00 38 FR 00 48 FR 00 69 FR 00 36 FR 00 31 FR 00 34 FR 00 53 FR 00 61 FR 00 35 FR 00 43 FR 00 63 FR 00 46 FR 00 39 FR 00 70 FR 00 44 FR 00 40 FR 00 37 FR 00 56 FR 00 59 FR 00 42 FR 00 47 FR 00 64 FR 00 71 FR 00 52 FR 00 54 FR 00 58 FR 00 65 FR 00 68 FR 00 45 FR 00 50 FR 00 57 FR 00 62 FR 00 67

Source: Bloomberg, Danareksa Estimates

2013 2014 Per cen tage (%) Per cen tage (%)

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Exhibit 9 menunjukkan perbandingan volume per transaksi untuk tiap seri obligasi pemerintah di tahun 2013 dan 2014. Untuk kedua tahun, terlihat adanya kecenderungan volume per transaksi yang lebih tinggi pada obligasi bertenor pendek. Dengan kata lain, dibutuhkan volume transaksi yang besar untuk mencapai kesepakatan jual beli pada obligasi ini. Secara keseluruhan, volume per transaksi di tahun 2014 lebih besar dari tahun 2013, mengimplikasikan kondisi perdagangan di tahun 2013 yang relatif lebih liquid mengingat lebih kecilnya nilai yang diperlukan di tiap transaksi.

Exhibit 9 shows a comparison of the volume per transaction for each government bonds series in 2013 and 2014. For both years, it can be seen that there tended to be higher volume per transaction for short tenor bonds than for long tenors. All in all, volume per transaction was higher in 2014 than in 2013, implying more liquid market conditions in 2013 considering that transactions were generally smaller in size.

Exhibit 9. Volume/Frequency Average in 2013 & 2014

0 5 10 15 20 25 30 35 40 45 50 FR 00 26 FR 00 27 FR 00 30 FR 00 55 FR 00 60 FR 00 28 FR 00 66 FR 00 32 FR 00 38 FR 00 48 FR 00 36 FR 00 31 FR 00 34 FR 00 53 FR 00 61 FR 00 35 FR 00 43 FR 00 63 FR 00 46 FR 00 39 FR 00 44 FR 00 40 FR 00 37 FR 00 56 FR 00 59 FR 00 42 FR 00 47 FR 00 64 FR 00 52 FR 00 54 FR 00 58 FR 00 65 FR 00 45 FR 00 50 FR 00 57 FR 00 62 0 5 10 15 20 25 30 35 40 45 50 FR 00 27 FR 00 30 FR 00 55 FR 00 60 FR 00 28 FR 00 66 FR 00 32 FR 00 38 FR 00 48 FR 00 69 FR 00 36 FR 00 31 FR 00 34 FR 00 53 FR 00 61 FR 00 35 FR 00 43 FR 00 63 FR 00 46 FR 00 39 FR 00 70 FR 00 44 FR 00 40 FR 00 37 FR 00 56 FR 00 59 FR 00 42 FR 00 47 FR 00 64 FR 00 71 FR 00 52 FR 00 54 FR 00 58 FR 00 65 FR 00 68 FR 00 45 FR 00 50 FR 00 57 FR 00 62 FR 00 67

Source: IDX, Danareksa Estimates

2013

2014

IDR billion

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Kontribusi terbesar jatuh tempo obligasi Pemerintah dari instrumen jangka pendek

Pada tahun 2015, total outstanding obligasi Pemerintah yang akan jatuh tempo mencapai IDR124.25 triliun. Kontribusi terbesar berasal dari instrumen jangka pendek, seri SPN dan SPNS, yang berkontribusi sebesar 35.97% atau mencapai Rp44.69 triliun. Jumlah obligasi jatuh tempo terbanyak terdapat pada bulan April sebesar Rp25.76 triliun, termasuk di dalamnya INDON senilai 1 miliar dolar AS atau setara Rp12,62 triliun d alam mata uang Rupiah. Seri Fixed Rate yaitu FR0027 akan jatuh tempo pada bulan Juni 2015 sebesar Rp17.7 trillion.

Most of the maturing Government securities will be short-term notes

A total of IDR124.25 trillion of government securities will mature in 2015. Most of the maturing securities will be short-term notes, the SPN and SPNS series, accounting for 35.97% of the total (IDR44.69 trillion). The month with the highest amount of maturing bonds (IDR25.76 trillion) is April, in which month USD1 billion (IDR12.62 trillion) of INDON series will mature. The fixed Rate series (FR0027) will mature in June 2015 (IDR17.7 trillion).

Exhibit 10. Maturing Government Bonds in 2015

0 5,000 10,000 15,000 20,000 25,000 30,000 2015 -01 2015 -02 2015 -03 2015 -04 2015 -05 2015 -06 2015 -07 2015 -08 2015 -09 2015 -10 2015 -11 2015 -12

Fixed Rate SPN SPNS Retail Others INDON/INDOIS

Source: MoF, Danareksa Estimates

Month ID Total Fixed Rate SPN SPNS Retail Others INDON/INDOIS

2015-01 875 0 0 875 0 0 0 2015-02 9,230 0 6,450 2,780 0 0 0 2015-03 8,150 0 3,600 4,550 0 0 0 2015-04 25,764 0 1,450 2,530 0 9,164 12,620 2015-05 1,850 0 1,850 0 0 0 0 2015-06 21,502 17,702 2,800 0 0 1,000 0 2015-07 4,800 0 4,800 0 0 0 0 2015-08 6,715 0 4,000 0 0 2,715 0 2015-09 18,246 0 2,000 0 13,614 2,632 0 2015-10 17,677 0 5,000 0 12,677 0 0 2015-11 9,436 0 2,000 0 0 7,436 0 2015-12 0 0 0 0 0 0 0 Total 124,245 17,702 33,950 10,735 26,291 22,947 12,620

Sektor keuangan mendominasi jatuh tempo obligasi korporasi

Total obligasi yang akan jatuh tempo di tahun 2015 mencapai Rp36,26 triliun, didominasi oleh sektor Finansial non Bank yang mencapai Rp 21,18 triliun. Kontribusi terbesar kedua berasal dari sektor perbankan sebesar Rp9,08 triliun untuk total obligasi yang jatuh tempo di tahun 2015. Secara umum sektor finansial, termasuk perusahaan multifinance, memiliki obligasi dengan jatuh tempo terbesar pada kuartal kedua. Pada kuartal kedua tahun 2015, obligasi jatuh tempo dari sektor finansial mencapai Rp9,37 triliun. Sedangkan untuk sektor perbankan pada umumnya memiliki jatuh tempo terbesar pada kuartal keempat. Pada kuartal keempat tahun 2015, total obligasi perbankan yang jatuh tempo adalah Rp5,08 triliun.

Financial sector bonds dominated maturing corporate bonds

Total maturing corporate bonds in 2015 will reach IDR36.26 trillion, dominated by Financial Sector bonds with a total amount of IDR21.18 trillion. The second largest contributor is the Banking sector with IDR9.08 trillion of maturing bonds. The Financial Sector bonds will mostly mature in the second quarter of the year, reaching IDR9.37 trillion. By comparison, most of the Banking sector bonds will mature in the fourth quarter, reaching IDR5.08 trillion.

IDR billion

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Exhibit 11. Maturing Corporate Bonds in 2015 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 2015 -01 2015 -02 2015 -03 2015 -04 2015 -05 2015 -06 2015 -07 2015 -08 2015 -09 2015 -10 2015 -11 2015 -12

Financial Banking Infrastructure Telco Prop & Cons Others

Source: IDX, Danareksa Estimates

IDR billion

Month ID Total Financial Banking Infrastructure Telco Prop & Cons Others

2015-01 1,513 807 706 0 0 0 0 2015-02 3,762 3,188 575 0 0 0 0 2015-03 2,627 1,937 0 368 0 0 322 2015-04 3,967 3,212 400 0 320 0 35 2015-05 4,461 3,726 585 0 0 0 150 2015-06 3,732 2,434 803 0 0 75 420 2015-07 4,278 1,042 400 805 1,005 85 941 2015-08 525 0 525 0 0 0 0 2015-09 1,078 1,078 0 0 0 0 0 2015-10 1,973 0 1,973 0 0 0 0 2015-11 4,703 2,143 1,491 219 0 150 700 2015-12 3,639 1,615 1,621 0 0 350 53 Total 36,258 21,182 9,079 1,392 1,325 660 2,621

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Dollar AS Menguat Seiring Membaiknya Perekonomian AS

Leading Economic Index (LEI) merupakan indikator ekonomi yang menunjukkan perubahan sebelum ekonomi bergerak secara keseluruhan, sedangkan Coincident Economic Index (CEI) bergerak seiring dengan kondisi perekonomian negara tersebut. Pada Exhibit 10, kedua indikator meningkat secara kontinyu yang mengindikasikan kondisi perekonomian AS sudah mulai meningkat kembali,

Dengan membaiknya kondisi perekonomian Amerika Serikat, The Fed melaksanakan QE tapering yang akhirnya berhenti pada bulan Oktober 2014 dan kini berencana menaikkan tingkat suku bunga acuan (Fed Funds Rate). Hal ini memotivasi investor untuk keluar dari safe haven dan berinvestasi di instrumen dengan risiko dan return yang lebih tinggi, seperti Indonesia. Namun, peningkatan Fed Funds rate akan menyebabkan required yield investor untuk memegang instrumen obligasi Indonesia diprediksi akan tinggi.

Exhibit 11 memperlihatkan bahwa seiring dengan kondisi ekonomi Amerika Serikat yang membaik, dolar AS menguat terhadap mata uang negara lain pada tahun 2014. Pelemahan nilai tukar terhadap dolar AS dialami oleh mata uang Euro, Yen, dan Rupiah sepanjang tahun 2014.

US dollar strengthening on the back of US economic improvements

In Exhibit 10, it can be seen that the Leading Economic Index (LEI) and the Coincident Economic Index (CEI) continued to post increases. This suggests that economic conditions in the US are already improving.

As the US economy recovered, the Fed conducted QE tapering which was completed in October 2014. Looking ahead, the Fed may have plans to raise the Fed Funds Rate. Against this backdrop, investors are encouraged to switch from safe haven instruments to higher risk/ higher return investments, like those in Indonesia. Nevertheless, raising the Fed Funds Rate will lead to a higher required yield demanded by investors to hold Indonesian bonds.

Exhibit 11 shows that as the US economy improved, the US dollar strengthened relative to other currencies in 2014. Currencies which weakened relative to the US Dollar included the euro, yen and rupiah, which depreciated by 13%, 14%, and 2%, respectively, in 2014.

Exhibit 12. Fed Funds rate vs US Inflation

96 99 102 105 108 111 76 83 90 97 104 111 Ja n -0 7 Ap r-07 Ju l-07 O ct -0 7 Ja n -0 8 Ap r-08 Ju l-08 O ct -0 8 Ja n -0 9 Ap r-09 Ju l-09 O ct -0 9 Ja n -1 0 Ap r-10 Ju l-10 O ct -1 0 Ja n -1 1 Ap r-11 Ju l-11 O ct -1 1 Ja n -1 2 Ap r-12 Ju l-12 O ct -1 2 Ja n -1 3 Ap r-13 Ju l-13 O ct -1 3 Ja n -1 4 Ap r-14 Ju l-14 O ct -1 4 US CEI (LHS) US LEI Fase FaseResesi Fase 8bu 3bu

Sources: Danareksa Research Institute

60 65 70 75 80 85 90 95 100 105 110 D ec-11 Fe b -1 2 Ap r-12 Ju n -1 2 A u g -1 2 O ct -1 2 D ec-12 Fe b -1 3 Ap r-13 Ju n -1 3 A u g -1 3 O ct -1 3 D ec-13 Fe b -1 4 Ap r-14 Ju n -1 4 A u g -1 4 O ct -1 4 USDIDR USDEUR USDJPY

Exhibit 13. USD Exchange rate

Sources: Bloomberg, Danareksa Estimates

Potensi Gain tinggi dengan harga atraktif

Exhibit 12 menunjukkan pergerakan indeks harga obligasi local currency Pemerintah di beberapa negara emerging markets (Dec 2011=100). Sepanjang tahun 2014, indeks harga obligasi domestik Indonesia secara umum meningkat, meskipun jauh lebih rendah dibandingkan negara lain. Kondisi tersebut menunjukkan potensi gain obligasi domestik Indonesia yang besar. Obligasi domestik Indonesia tetap menarik meskipun memiliki volatilitas harga yang sangat tinggi seperti ditunjukkan pada pertengahan tahun 2013.

High potential gains at attractive prices

Exhibit 12 shows movements in domestic government bonds price indexes for several emerging market countries (Dec 2011=100). In 2014, the price index of Indonesian domestic bonds generally increased, albeit less significantly than in the other countries. This suggests that Indonesian domestic bonds have the potential to make large gains. All in all, Indonesian domestic bonds are still considered attractive even though they are highly volatile (as seen in the middle of 2013).

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Exhibit 13 menunjukkan rasio antara indeks harga dan indeks nilai tukar terhadap USD. Terlihat rasio Indonesia menurun signifikan di pertengahan tahun 2013, hal ini diakibatkan terdepresiasinya Rupiah sebesar 23,6% terhadap USD sejak Juni 2013 hingga akhir November 2014. Terdepresiasinya Rupiah secara signifikan menyebabkan rasio menurun, mengindikasikan harga obligasi Indonesia relatif murah bila dilihat dari denominasi USD. Selain itu, masih terdapat potensi foreign inflow menuju pasar obligasi Indonesia selama nilai rasio masih berada di bawah 1.

Exhibit 13 shows the ratio between the price index and the exchange rate index toward the US Dollar. We can see a significant decline in the Indonesian ratio in the middle of 2013 which was due to the rupiah’s depreciation relative to the US dollar (weakening by 23.6% from 2013 until November 2014). The rupiah’s depreciation was behind the declining ratio, suggesting that Indonesian bond prices were relatively cheap in US dollar terms. In addition, there is still the potential for foreign inflows into the Indonesian bonds market as long as the ratio stands below 1.

Exhibit 14. Price Index of Local Currency Bonds Index

90 95 100 105 110 115 120 125 130 135 D ec-11 Fe b -1 2 Ap r-12 Ju n -1 2 A u g -1 2 O ct -1 2 D ec-12 Fe b -1 3 Ap r-13 Ju n -1 3 A u g -1 3 O ct -1 3 D ec-13 Fe b -1 4 Ap r-14 Ju n -1 4 A u g -1 4 O ct -1 4 Indonesia Philippines India Brazil

65% 75% 85% 95% 105% 115% 125% 135% 145% D ec-11 Fe b -1 2 Ap r-12 Ju n -1 2 A u g -1 2 O ct -1 2 D ec-12 Fe b -1 3 Ap r-13 Ju n -1 3 A u g -1 3 O ct -1 3 D ec-13 Fe b -1 4 Ap r-14 Ju n -1 4 A u g -1 4 O ct -1 4 Indonesia Philippines India Brazil

Exhibit 15. Ratio Between Price and Currency

Meningkatnya Premi Risiko Akibat Penurunan Yield US

Treasury

Yield spread antara obligasi Pemerintah Indonesia berdenominasi dolar AS (INDON) dan US Treasury 10 tahun (sovereign risk premium) berada dalam tren yang menurun sejak awal tahun 2013. Sedangkan untuk currency risk premium, yaitu spread antara obligasi Pemerintah berdenominasi dolar AS dan obligasi Pemerintah berdenominasi Rupiah, berada dalam tren meningkat. Hal ini menandakan investor asing memiliki minat yang tinggi untuk berinvestasi di obligasi Indonesia tetapi meminta required yield yang lebih tinggi untuk berinvestasi di obligasi Pemerintah berdenominasi Rupiah.

Declining US Treasury yields led to an increasing risk premium

The yield spread between Indonesian government bonds denominated in US Dollars and the 10-year US Treasury (the sovereign risk premium) has been in a declining trend since the beginning of 2014. As for the currency premium, the yield spread between Government bonds denominated in US Dollars and Government bonds denominated in Rupiah, the trend has been upwards. This is evidence of the willingness of foreign investors to invest in Indonesian bonds even though they expect a higher required yield to invest in government bonds denominated in rupiah.

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Exhibit 16. Sovereign Risk Premium 150 170 190 210 230 250 270 290 310 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% O ct -1 3 N ov -1 3 D ec-13 Ja n -1 4 Fe b -1 4 M ar -1 4 Ap r-14 Ma y-14 Ju n -1 4 Ju l-14 A u g -1 4 Se p -1 4 O ct -1 4 N ov -1 4 D ec-14

Sovereign Risk Premium (RHS)

UST 10Y INDON 10Y

Sources: www.treasury.gov, Bloomberg, Danareksa Estimates

225 245 265 285 305 325 345 365 385 405 425 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% O ct -1 3 N ov -1 3 D ec-13 Ja n -1 4 Fe b -1 4 M ar -1 4 Ap r-14 Ma y-14 Ju n -1 4 Ju l-14 A u g -1 4 Se p -1 4 O ct -1 4 N ov -1 4 D ec-14

Currency Risk Premium (RHS)

INDON 10Y

Exhibit 17. Currency Risk Premium

Tren peningkatan harga obligasi USD selama 2014

Exhibit 16 menampilkan indeks harga INDON dibandingkan dengan indeks harga obligasi dari Negara-negara berkembang lainnya, baik yang termasuk dalam kategori Investment Grade maupun kategori High Yield. Terlihat pada gambar bahwa harga INDON mengalami penurunan yang cukup dalam di pertengahan tahun 2013 namun kembali pulih di tahun 2014. Indeks harga INDON yang cenderung lebih rendah dari indeks harga sovereign bonds Negara lainnya menunjukkan harga yang relatif lebih murah dan adanya potensi gain sehingga masih menarik bagi investor asing.

Pergerakan CDS sebagai salah satu indikator risiko yang mempengaruhi pengambilan keputusan investor menunjukkan tren yang menurun di tahun 2014. Seperti yang terlihat pada Exhibit 17, CDS sempat mencapai level tertinggi di pertengahan tahun 2013. Dibandingkan Negara berkembang lainnya, risiko berinvestasi di Indonesia lebih moderat dengan CDS yang lebih tinggi dari Malaysia dan Filipina tetapi lebih rendah dari Brazil.

Increasing trend of the Indonesian USD bonds price in 2014

Exhibit 16 illustrates the price index of INDON compared to the price index of sovereign bonds from other developing countries, including the Investment Grade countries and High Yield countries. As can be seen in the Exhibit, the price of INDON slumped in the middle of 2013 but then recovered in 2014. The INDON price index tends to be lower than the price index of the sovereign bonds of other countries, implying a relatively lower price and room for potential gains. Thus, this instrument is still considered attractive for foreign investors.

The CDS - as a risk indicator which influences the decision making of investors – was in a downward trend in 2014. As can be seen in Exhibit 17, the CDS reached its highest level in the middle of 2013. Compared to other developing countries, the risk of investing in Indonesia can be considered moderate with a higher CDS than that of Malaysia and the Philippines but lower than Brazil’s CDS.

Exhibit 18. Price Index of INDON and Other

90 95 100 105 110 115 120 125 130 135 D ec-11 Fe b -1 2 M ar -1 2 Ma y-12 Ju n -1 2 A u g -1 2 Se p -1 2 N ov -1 2 D ec-12 Fe b -1 3 M ar -1 3 Ma y-13 Ju n -1 3 Ju l-13 Se p -1 3 O ct -1 3 D ec-13 Ja n -1 4 M ar -1 4 Ap r-14 Ju n -1 4 A u g -1 4 Se p -1 4 O ct -1 4 D ec-14 Indonesia US EM Investment Grade EM High Yield

50 100 150 200 250 300 350 D ec-11 Fe b -1 2 M ar -1 2 Ma y-12 Ju n -1 2 A u g -1 2 Se p -1 2 N ov -1 2 D ec-12 Fe b -1 3 M ar -1 3 Ma y-13 Ju n -1 3 Ju l-13 Se p -1 3 O ct -1 3 D ec-13 Ja n -1 4 M ar -1 4 Ap r-14 Ju n -1 4 A u g -1 4 Se p -1 4 O ct -1 4 D ec-14 Indonesia Philippines Malaysia Brazil Exhibit 19. CDS 5-year

bps

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Pasar obligasi korporasi domestik dan korelasinya dengan pertumbuhan GDP

Pertumbuhan outstanding obligasi korporasi di Indonesia memiliki korelasi kuat dengan pertumbuhan GDP. Pada tahun 2013-2014, biaya pendanaan melalui penerbitan obligasi meningkat, sehingga Perusahaan secara umum menurunkan penerbitan obligasi. Pendanaan yang berkurang menyebabkan Perusahaan lebih sedikit melakukan ekspansi, sehingga kontribusi terhadap laju pertumbuhan berkurang. Berdasarkan data historical dari 4Q07 hingga 4Q14, laju pertumbuhan obligasi korporasi yang lebih lambat juga akan diiringi oleh pertumbuhan GDP yang lebih lambat. Apabila pada tahun 2015 masih relatif sulit bagi Perusahaan untuk mendapatkan pendanaan dengan biaya yang lebih rendah, maka diprediksi pertumbuhan outstanding obligasi korporasi tidak akan meningkat secara signifikan. Pertumbuhan Perusahaan yang tidak signifikan berpotensi mendorong lambatnya pertumbuhan GDP.

The correlation between the domestic corporate bonds market and GDP growth

The growth of outstanding corporate bonds in Indonesia has a strong correlation with GDP growth. In 2013-2014, the financing costs for bond issuances increased. This drove the number of issuances down. Lower funding from bond issuances means that fewer companies undertake business expansion, which, in turn, reduces the pace of growth. Based on historical data from 4Q07 to 4Q14, slower growth in corporate bonds is followed by slower GDP growth. If difficulties in finding low cost financing persist in 2015, then the growth of outstanding corporate bonds may not show a significant increase. This may potentially translate into slower GDP growth.

Exhibit 20. Outstanding Corporate Bonds vs GDP

0% 10% 20% 30% 40% 50% 60% 70% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 4Q0 7 1Q0 8 2Q0 8 3Q0 8 4Q0 8 1Q0 9 2Q0 9 3Q0 9 4Q0 9 1Q1 0 2Q1 0 3Q1 0 4Q1 0 1Q1 1 2Q1 1 3Q1 1 4Q1 1 1Q1 2 2Q1 2 3Q1 2 4Q1 2 1Q1 3 2Q1 3 3Q1 3 4Q1 3 1Q1 4 2Q1 4 3Q1 4 4Q1 4 GDP Growth YoY (RHS)

Corp Bonds Outstanding Growth (yoy) MA(2) of Corp Bonds Outstanding Growth

Source: KSEI, BPS

Pergerakan historis aktivitas pasar sekunder

Periode bullish sepanjang tahun 2011 sampai dengan 1Q12 ditandai dengan penurunan yield secara keseluruhan dan memiliki turnover obligasi Pemerintah yang terus meningkat. Perbandingan antara volume transaksi dan total outstanding obligasi Pemerintah (Government Bonds Turnover ratio) yang mengalami peningkatan menunjukkan aktivitas perdagangan sekunder yang tinggi.

Sementara untuk obligasi korporasi, aktivitas perdagangan sekunder cenderung stabil pada periode bullish, kemudian

Activity in the secondary bond market

The bullish period from 2011 until 1Q12 was marked by declining overall bond yields and brisker trading in government bonds. The ratio of the transactions volume to the total outstanding government bonds (the Government Bonds Turnover ratio) showed an increase, indicating brisker trading activity in the secondary market.

As for corporate bonds, trading activity in the secondary market tended to stay stable in the bullish period before declining in

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Exhibit 21. Secondary Market Activity 5.00 5.50 6.00 6.50 7.00 7.50 8.00 8.50 9.00 9.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 D ec-10 Fe b-1 1 Ap r-11 Ju n-1 1 Au g-1 1 O ct -1 1 D ec-11 Fe b-1 2 Ap r-12 Ju n-1 2 Au g-1 2 O ct -1 2 D ec-12 Fe b-1 3 Ap r-13 Ju n-1 3 Au g-1 3 O ct -1 3 D ec-13 Fe b-1 4 Ap r-14 Ju n-1 4 Au g-1 4 O ct -1 4 D ec-14

Bullish Sideway Bearish

Gov't Bonds Turn Over Corp Bonds Turn Over Yield Index Source: IDX, KSEI

Performa obligasi Pemerintah membaik di tahun 2014

Obligasi Pemerintah Indonesia mencatatkan significant loss mencapai -13,18% selama tahun 2013. Kemudian pada tahun 2014, indeks harga obligasi Pemerintah mengalami perbaikan hingga menghasilkan total return (termasuk capital gain) sebesar 13,24% pada akhir tahun.

Exhibit 21 menunjukkan performa pasar obligasi Pemerintah tahun 2010-2014. Pada periode bearish di tahun 2013, performa obligasi korporasi mengungguli performa obligasi Pemerintah. Obligasi pemerintah kembali pulih dan melampaui total return obligasi korporasi sebesar 10,24% di 2014. Sektor Banking, Finance, dan Telecommunication menjadi sektor dengan total return tertinggi yaitu masing-masing sebesar 10,51%; 10,16%; dan 10,27% pada tahun 2014.

Government bonds performed well in 2014

Indonesian government bonds posted a loss of 13.18% in 2013. However, in 2014, the Indonesian government bonds price index rallied resulting in a total return (including capital gains) of 13.24% at the end of the year.

Exhibit 21 shows the performance of Indonesian government bonds in 2010-2014. In the bearish period of 2013, corporate bonds performed much better than government bonds. In 2014, however, the performance of government bonds improved to surpass that of corporate bonds (with a total return of 13.24% vs 10.24%). The highest total returns on corporate bonds were seen in the Banking, Finance, and Telecommunications sectors at 10.51%, 10.16% and 10.27% respectively in 2014.

Exhibit 22. Total Return and Capital Gain Performance

115 120 125 130 135 140 145 150 -20% -15% -10% -5% 0% 5% 10% 15% Ja n -1 3 Fe b -1 3 M ar -1 3 Ap r-13 Ma y-13 Ju n -1 3 Ju l-13 A u g -1 3 Se p -1 3 O ct -1 3 N ov -1 3 D ec-13 Ja n -1 4 Fe b -1 4 M ar -1 4 Ap r-14 Ma y-14 Ju n -1 4 Ju l-14 A u g -1 4 Se p -1 4 O ct -1 4 N ov -1 4 D ec-14

Total Return Price Index

Exhibit 23. Indonesian Bonds Market

Sources: Danareksa Estimates

Sector YTD Total Return

2010 2011 2012 2013 2014 Composite 20.82 20.89 12.20 -10.14 12.95 Governments 21.47 22.00 12.52 -13.18 13.24 Corporates 16.52 15.07 10.81 4.70 10.24 Finance 14.87 9.59 10.10 5.17 10.16 Banking 15.04 14.57 12.04 5.52 10.51 Consumer Goods Industry 18.40 13.24 9.05 6.58 5.13 Telecommunication 19.66 16.41 9.41 -1.15 10.27 Infrastructure, Utilities & 16.84 15.80 10.07 6.85 9.86 Transportation

Property and Construction -0.93 22.05 13.16 6.97 9.99 Corporate upper A- 17.19 14.83 10.75 4.84 10.25 Corporate below A- up to BBB- 9.99 19.10 12.80 -1.67 9.98 SOE 16.14 17.72 9.95 3.16 10.33

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Fundflow menuju safe haven meningkat

Kondisi perekonomian Eropa yang belum membaik menyebabkan demand terhadap US Treasury sebagai salah satu instrument safe haven meningkat signifikan.Tren penurunan yield curve 10-tahun yang disertai pergerakan yield curve 2-tahun US Treasury yang cenderung bergerak sideways selama tahun 2014, menyebabkan bentuk yield curve yang lebih flat jika dibandingkan dengan akhir tahun 2013. Hal tersebut berada di luar ekspektasi pasar yang memperkirakan kenaikan tingkat suku bunga pada tahun 2014 pasca kenaikan Fed Funds rate.

Increasing fund flows to safe havens

As economic conditions have remained weak in Europe, demand for US Treasuries as a safe haven has increased significantly. Due to the declining trend in 10 year yields with the 2 year US Treasury yield staying flat, the yield curve tended to flatten in 2014. This was not in line with market expectations which anticipated interest rate increases in 2014 following expected hikes in the Fed Funds rate.

Exhibit 24. US Treasury 10-& 2- Years Yield

-0.5% 0.5% 1.5% 2.5% 3.5% 4.5% 5.5% 6.5% D ec-01 Ju n -0 2 D ec-02 Ju n -0 3 D ec-03 Ju n -0 4 D ec-04 Ju n -0 5 D ec-05 Ju n -0 6 D ec-06 Ju n -0 7 D ec-07 Ju n -0 8 D ec-08 Ju n -0 9 D ec-09 Ju n -1 0 D ec-10 Ju n -1 1 D ec-11 Ju n -1 2 D ec-12 Ju n -1 3 D ec-13 Ju n -1 4 D ec-14 US 2Y US10Y Sources: Bloomberg -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% D ec-01 Ju n -0 2 D ec-02 Ju n -0 3 D ec-03 Ju n -0 4 D ec-04 Ju n -0 5 D ec-05 Ju n -0 6 D ec-06 Ju n -0 7 D ec-07 Ju n -0 8 D ec-08 Ju n -0 9 D ec-09 Ju n -1 0 D ec-10 Ju n -1 1 D ec-11 Ju n -1 2 D ec-12 Ju n -1 3 D ec-13 Ju n -1 4 D ec-14

Exhibit 25. US Treasury Yield Slope

Sources: Bloomberg

Yield curve 2 tahun Germany Bunds menyentuh negatif Hal yang sama terjadi pada obligasi safe haven untuk Euro currency yaitu German Bunds. Tren penurunan yield curve 10-tahun mengindikasikan adanya aliran dana yang masuk ke instrumen dengan tingkat risiko yang rendah. Tren penurunan juga dapat diamati dari pergerakan yield curve 2-tahun German Bunds. Yield curve 2-tahun German Bunds menyentuh negatif 0,11% di akhir tahun. Kedua tenor tersebut mencatatkan yield terendah selama 14 tahun terakhir. Dengan tren penurunan pada tenor tersebut, yield slope menunjukkan tren yang menurun dan merupakan yang terendah selama lima tahun terakhir.

Negative 2 year German Bunds Yield

German Bunds, as a safe haven for euro investors, also enjoyed stronger demand. The 10-year yield showed a declining trend, indicating fund flows into this low risk instrument. The 2 year yield was also in a declining trend and it even entered negative territory at 0.11% by the end of the year. This is a 14 year record low. With these trends, the yield slope also declined and is now at a 5 year record low.

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Exhibit 26. German Bunds 10-& 2- Years Yield -0.5% 0.5% 1.5% 2.5% 3.5% 4.5% 5.5% D ec-01 Ju n -0 2 D ec-02 Ju n -0 3 D ec-03 Ju n -0 4 D ec-04 Ju n -0 5 D ec-05 Ju n -0 6 D ec-06 Ju n -0 7 D ec-07 Ju n -0 8 D ec-08 Ju n -0 9 D ec-09 Ju n -1 0 D ec-10 Ju n -1 1 D ec-11 Ju n -1 2 D ec-12 Ju n -1 3 D ec-13 Ju n -1 4 D ec-14

Germany 2Y Germany 10Y

-0.25% 0.25% 0.75% 1.25% 1.75% 2.25% 2.75% D ec-01 Ju n -0 2 D ec-02 Ju n -0 3 D ec-03 Ju n -0 4 D ec-04 Ju n -0 5 D ec-05 Ju n -0 6 D ec-06 Ju n -0 7 D ec-07 Ju n -0 8 D ec-08 Ju n -0 9 D ec-09 Ju n -1 0 D ec-10 Ju n -1 1 D ec-11 Ju n -1 2 D ec-12 Ju n -1 3 D ec-13 Ju n -1 4 D ec-14

Exhibit 27. German Bunds Yield Slope

Perkembangan pasar obligasi Italia, Spanyol, dan Portugal

Inflasi tahunan di kawasan Eropa yang cenderung rendah mencapai 0,4% pada bulan Agustus 2014 menyebabkan European Central Bank menurunkan tingkat suku bunga sebesar 10bps dalam rangka mendorong pertumbuhan ekonomi. Per September 2014, benchmark interest rates diturunkan menjadi 0,05% dan deposit rate menjadi negatif 0,2%.

Yield obligasi Spanyol 10 tahun mencapai 1,6% per akhir tahun 2014, atau turun signifikan sebesar 254bps dibandingkan tahun 2013. Penurunan signifikan juga dialami yield obligasi 10 tahun Italia mencapai 1,88% , atau turun sebesar 220bps sejak akhir tahun 2013. Hal serupa dialami Portugal yang mengalami penurunan yield obligasi sebesar 331bps mencapai 2,66% per tanggal 30 Desember 2014.

Apabila kondisi perekonomian belum menunjukkan perbaikan, maka akan terjadi peningkatan risiko gagal bayar. Pada tahun 2015, Italia akan memiliki jatuh tempo terbesar yaitu USD 400 miliar. Sedangkan Portugal, pada bulan November 2014 melakukan bonds exchange antara bonds yang jatuh tempo pada 2015 dan 2016 dengan bonds yang jatuh tempo pada tahun 2021 dan 2023. Sehingga pada tahun 2015, Portugal mencatatkan jatuh tempo sebesar USD 27,9 miliar. Sementara itu Spanyol dan Yunani masing-masing mencatatkan jatuh tempo sebesar USD 247 miliar dan USD 36,2 miliar pada tahun 2015.

Market conditions for Italian, Spanish and Portuguese bonds

The low Euro area yearly inflation (0.4%) as of August 2014 had caused The European Central Bank to lowered the interest rates by 10 bps in order to spur the economic growth. As of September 2014, the benchmark interest rate was lowered to 0.05% and the deposit rate was lowered to minus 0.2%.

Spain’s 10 year bond yield stood at 1.6% at the end of 2014, or down by 254bps from its level in 2013. The yield on Italian 10 year bonds also showed a significant decline. It dropped to 1.88%, or down 220bps from the end of 2013. Similarly in Portugal, bond yields declined by 331 bps to 2.66% as of December 30, 2014.

If the economic condition remained weak, the default risk will increased. The total amount of bonds maturing in those three countries and Greece in 2015 will reach USD 900 billion. Italy has the largest amount of maturing bonds at USD 400 billion in 2015. Portugal, meanwhile, will exchange its bonds which will mature in 2015 and 2016 with bonds maturing in 2021 and 2023. Hence in 2015, Portugal’s total maturing bonds will reach USD 27.9 billion. Spain and Greece have USD 247 billion and USD 36.2 billion of maturing bonds in 2015.

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Exhibit 28. Eurozone Maturity Profile 0 200 400 600 800 1,000 1,200 1,400 1,600 2015 2016 > 2016 Germany Portugal Italy

Spain Greece

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% D ec-09 M ar -1 0 Ju n -1 0 Se p -1 0 D ec-10 M ar -1 1 Ju n -1 1 Se p -1 1 D ec-11 M ar -1 2 Ju n -1 2 Se p -1 2 D ec-12 M ar -1 3 Ju n -1 3 Se p -1 3 D ec-13 M ar -1 4 Ju n -1 4 Se p -1 4

Italy YC10Y Spain YC10Y Portugal YC10Y (RHS)

Exhibit 29. Eurozone 10-Years Yield

Exhibit 30. Eurozone Maturity Profile

USD billion

Year Germany Portugal Italy Spain Greece

2015 189,280 27,912 400,082 247,325 36,221

2016 199,336 19,043 218,927 126,283 7,562

> 2016 944,625 185,936 1,495,150 730,186 314,877

Total 1,333,241 232,891 2,114,159 1,103,794 358,660

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Penerbitan obligasi sektor keuangan mendominasi

Mengingat profil bisnis dari perusahaan-perusahaan keuangan kami mengestimasi dominasi penerbitan obligasi korporasi dari sektor multifinance. Pengurangan harga BBM bersubsidi semenjak Desember 2014, akan mempertahankan demand yang kuat terhadap kendaraan bermotor dalam jangka menengah. Pertumbuhan dari pembelian kendaraan bermotor yang sebagian besar menggunakan jasa perusahaan pembiayaan, akan mendukung pertumbuhan bisnis perusahaan multifinance. Untuk mendukung momentum pertumbuhan tersebut, maka estimasi pendanaan terutama yang berasal dari penerbitan obligasi korporasi akan meningkat. Dengan demikian, maka kami memperkirakan penerbitan obligasi multifinance pada tahun 2015 mencapai Rp23,03 triliun.

Pemerintah diprediksi akan mendorong sektor pembangunan infrastruktur yang akan memacu pertumbuhan sektor riil. Hal ini akan memacu pertumbuhan kredit modal kerja untuk kebutuhan pendanaan yang berasal dari sektor perbankan. Berdasarkan hal tersebut estimasi penerbitan obligasi perbankan akan tumbuh 53% mencapai Rp17,92 triliun di tahun 2015. Secara keseluruhan, penerbitan obligasi korporasi di tahun 2015 akan mencapai Rp51,19 triliun, atau tumbuh 11% dari tahun sebelumnya. Sementara itu untuk obligasi Pemerintah, target penerbitan kotor adalah sebesar Rp430,66 triliun dan penerbitan bersih sebesar Rp277,05 triliun.

Financial sector bonds issuance will dominate

In view of the business profile of financial companies, especially multifinance companies, we believe that issuances of coporate bonds in 2015 will still be dominated by companies from this sector. Since the price of subsidized fuel has been significantly reduced since December, demand for automotive products should remain strong over the medium term. Growth in automotive sales has underpinned the growth in the multifinance business. To maintain the growth momentum, we estimate that the funding source from corporate bond issuances will continue to increase. As such, we expect that issuances of bonds by multifinance companies will reach IDR23.03 trillion in 2015.

As for the Banking sector, we expect infrastructure development to spur the growth in working capital loans. In 2015, the banking sector is expected to issue IDR17.92 trillion of bonds, or 53% higher than in the previous year. In total, corporate bond issuances are expected to reach IDR51.19 trillion in 2015, up an estimated 11% over the previous year. For government bonds, gross issuances are expected to reach IDR430.66 trillion in 2015 with net issuances of IDR277.05 trillion.

Exhibit 31. Estimated Issuance of Government and Corporate Bonds (IDR Billion)

Source: IDX, KSEI, MoF

Govt Bonds 2009 2010 2011 2012 2013 2014 2015F

Mature & Buyback 50,972 60,505 83,550 47,412 93,475 163,151 153,612

Gross Issuance 144,558 161,903 211,179 268,549 327,716 428,129 430,662

Nett Issuance 144,305 148,892 204,600 151,913 268,548 264,978 277,050

Outstanding 727,586 815,974 943,020 1,038,418 1,085,173 1,232,272 1,509,322

Corp Bonds 2012 2013 2014 2015F

Financial Company Maturing 9,277 11,470 19,539 20,943

Issuance 25,507 22,735 19,224 23,037 Banking Maturing 4,637 8,724 10,968 9,079 Issuance 19,975 15,988 11,712 17,917 Others Maturing 12,944 6,211 12,426 5,998 Issuance 23,804 19,841 15,250 10,239 Total Maturing 26,858 26,405 42,933 36,019 Issuance 69,286 58,564 46,186 51,193 Issuance Growth 53% -15% -21% 11%

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Memasuki periode bullish

Yield curve 10-tahun diprediksi mencapai angka 7,7% pada akhir semester pertama 2015 dan akan kembali mengalami penurunan hingga menyentuh 7,33% di akhir tahun 2015. Pergerakan yield yang cenderung turun secara perlahan selama 1H15 lebih didominasi oleh faktor kondisi ekonomi global seperti issue QE Eropa, Fed Funds Rate di US, dan ekspektasi harga minyak dunia yang relatif masih akan rendah. Kebutuhan penerbitan yang tidak meningkat signifikan dibandingkan dengan tahun 2014 serta kemungkinan strategi front loading yang dilakukan Pemerintah berpotensi menurunkan tingkat supply obligasi Pemerintah di 2H15 sehingga mendorong yield kembali turun. Selain itu, inflasi diperkirakan akan berada di level 5,02% di akhir tahun 2015. Dengan demikian, Bank Indonesia akan menurunkan tingkat suku bunga acuannya (BI Rate) menjadi 7,5% menjelang akhir tahun 2015. Sedangkan dari sentimen global, Fed Funds Rate diprediksi baru akan mengalami peningkatan di tahun 2016 mendatang.

Entering the bullish period

The 10-year yield curve is predicted to reach 7.7% at the end of the first semester of 2015. After that, it is expected to decline to 7.33% by the end of 2015. The expectation of declining bond yields in 1H15 is further underpinned by several global factors including QE by the European Central Bank, the Fed Funds rate in the US, and the expectation that oil prices will remain relatively low. The fact that the need for bond issuances will not significantly increase compared to last year and the government’s front loading strategy at government bond auctions may potentially reduce the supply of government bonds in 2H15, thus driving bond yields further down. Meanwhile, inflation is expected to be subdued at around 5.02% at the end of 2015. This will give room to Bank Indonesia to cut its benchmark interest rate (the BI rate) to 7.5% by the end of 2015. On the global front, however, the Fed Funds rate is predicted to increase in 2016.

Exhibit 32. SUN 10-years Yield Curve

4.0 5.0 6.0 7.0 8.0 9.0 10.0 D ec-11 M ar -1 2 Ju n-1 2 Se p-1 2 D ec-12 M ar -1 3 Ju n-1 3 Se p-1 3 D ec-13 M ar -1 4 Ju n-1 4 Se p-1 4 D ec-14 M ar -1 5 Ju n-1 5 Se p-1 5 D ec-15 Actual Forecast

Bond Coupon (%) Tenor YTM as of 1H15 EoP 2015

31 Dec 14 YTM Total Capital Interest YTM Total Capital Interest (%) (%) Return Gain Return (%) Return Gain Return

(%) (%) (%) (%) (%) (%)

FR0069 7.88 4.23 7.69 7.13 3.97 1.74 2.24 6.73 8.72 2.63 6.10

FR0070 8.38 9.14 7.83 7.42 4.02 2.40 1.62 7.03 10.10 4.50 5.61

FR0071 9.00 14.14 8.19 7.69 5.58 3.89 1.69 7.30 12.67 6.83 5.84

FR0068 8.38 19.31 8.30 7.93 6.56 3.49 3.07 7.56 14.40 7.18 7.22

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Berdasarkan skenario di atas, yield curve obligasi Pemerintah diperkirakan akan bergerak shift downwards hingga akhir tahun 2015. Yield curve 2 tahun pada akhir tahun 2015 diprediksi mencapai 6,69% atau turun 100bps dibandingkan akhir tahun 2014. Sedangkan ekspektasi yield curve 10 tahun di akhir 2015 mencapai 7,33% atau turun 125bps. Dengan demikian, slope (selisih antara yield curve 10- dan 2-tahun) pada tahun 2015 mencapai 61bps, bergerak sideways dari tahun 2014. Dengan kata lain, bentuk kurvatur di akhir 2015 diperkirakan tidak berbeda signifikan jika dibandingkan dengan akhir 2014. Based on the scenario above, the government bonds yield

curve will shift downwards until the end of 2015. The 2-year yield curve is predicted to decline to 6.69% in 2015 or down 100bps compared to the end of 2014. Meanwhile, the 10-year yield curve is expected to fall to 7.33%, or down 125bps. Hence, the yield slope (the difference between the 10 and 2 year yield curves) will stand at an estimated 61bps at the end of 2015, not much changed from its level in 2014.

Exhibit 33. Government Bonds Yield Curve

6.00 6.50 7.00 7.50 8.00 8.50 9.00 9.50 0 5 10 15 20 25 30 31-Dec-14 1H15F EoP 2015F

Source: Bloomberg, Danareksa Estimates

Government Bond Yield Curve YC 1Y YC 2Y YC 3Y YC 5Y YC 6Y YC 7Y YC 10Y YC 15Y YC 20Y YC 30Y

31-Dec-11 4.56 5.00 5.19 5.49 5.65 5.82 6.29 6.83 7.12 7.38 31-Dec-12 4.13 4.43 4.57 4.79 4.92 5.06 5.47 5.98 6.28 6.55 31-Dec-13 7.30 7.66 7.82 8.11 8.26 8.39 8.70 9.00 9.14 9.25 31-Dec-14 7.09 7.68 7.97 8.24 8.32 8.39 8.58 8.84 9.01 9.18 1H15F 6.51 7.05 7.26 7.42 7.47 7.52 7.70 7.95 8.11 8.26 EoP 2015F 6.15 6.69 6.90 7.06 7.11 7.16 7.33 7.59 7.75 7.90

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