IDR Bond Market Outlook 2019

Turning Point to Positive Returns

Handy Yunianto
Head of Fixed Income Research
handy.yunianto@mandirisek.co.id

June 2019
IDR Bond Market Outlook 2019
Turning Point to Positive Returns
Five catalysts to support positive total
returns of INDOGB in 2019.

1) Better bond yield entry level

compared to early 2018.
2) BI7drr rate near peak level with
dovish Fed communication, narrowing
CAD expectation, and manageable
inflation, thus will stabilize rupiah
currency in 2019.
3) Prudent fiscal and monetary policies
will be positive for sovereign rating
outlook.
4) More long term foreign investors in
INDOGB market than “hot money”.
5) High support from onshore investors
with the Government’s plan to reduce
withholding tax for bond instrument.

2
1H Review: Our key call for INDOGB Outlook 2019
Made in Early 2019
Asset class performance 1H: We forecasted the We forecasted the 10yr INDOGB yield will fall to a
returns of INDOGB will be back to positive this year. range of 7.5-7.78%*)
BINDO Index JCI Index
4.80 GTUSDID10Y Govt (L1) GIDN10YR Index (R1) 8.40
IDRUSD Curncy BEMSID Index
112.0 4.60 Election Euphoria Is
Waning, Off-Set by 8.20
4.40 Escalating US China
108.0 Trade War Sentiment
8.00
4.20
104.0

4.00 7.80
100.0
3.80
96.0 7.60
3.60
92.0 7.40
Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 3.40

Total Return (%) 3.20 7.20

Instrument -1 week -1 mo -3 mo -1 yr ytd 2018 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19
BINDO Index 1.1 3.5 2.6 6.4 6.8 -2.17
JCI Index 1.0 7.3 -2.2 5.8 2.3 -2.54 *) Based on regression model, assuming 10yr UST yield at
IDRUSD Curncy 0.2 1.7 -1.1 -0.9 1.3 -5.76 2.6-2.8%, 7drrr at 6-6.25%, 5yr CDS at 90-100 and Rupiah at
BEMSID Index 1.0 3.4 6.0 13.9 11.1 -3.09 14,000-14,300 against USD

Source: Bloomberg and Mandiri Sekuritas as of 19-Jun-2019 3

 Comparison to Emerging Market
Lower global bond yield pushed EM bond rally
Appr/(Depp) % Changes (bps)
Country Spot 31-Dec-18 31-May-19 20-Jun-19 10yr LCY BOND YIELD 19-Jun-19
Monthly Yearly
MTD YTD
Pakistani Rupee 139.80 147.02 157.20 (6.47) (11.07)
Nigerian Naira 362.59 360.21 360.46 (0.07) 0.59
SLOVAKIA 0.21 (19) (58)
Lebanese Pound 1,509 1,510 1,508 0.10 0.06 SLOVENIJA 0.28 (25) (71)
Indian Rupee 69.77 69.70 69.59 0.15 0.25 LATVIA 0.32 (12) (70)
Hong Kong Dollar 7.83 7.84 7.82 0.30 0.21
BULGARIA 0.38 (2) (10)
Chinese Renminbi 6.88 6.91 6.85 0.80 0.41
Indonesian Rupiah 14,417 14,297 14,181 0.82 1.66 LITHUANIA 0.69 (16) (42)
Malaysian Ringgit 4.13 4.19 4.15 0.95 (0.41) CROATIA 1.24 (42) (117)
Bulgarian Lev 1.71 1.75 1.73 1.08 (1.49) CZECH 1.53 (20) (36)
Lithunian Litas 3.01 3.09 3.06 1.08 (1.54)
KOREA 1.54 (14) (36)
Slovenian Tolar 208.98 214.55 212.25 1.08 (1.54)
Philippine Peso 52.56 52.17 51.54 1.23 1.98
THAILAND 2.16 (24) (33)
Singapore Dollar 1.36 1.37 1.36 1.28 0.41 POLAND 2.36 (35) (46)
Croatian Kuna 6.46 6.64 6.56 1.31 (1.46) HUNGARY 2.68 (37) (29)
Hungarian Forint 279.94 290.94 287.07 1.35 (2.48)
CHINA 3.25 (3) (5)
Romanian Leu 4.06 4.25 4.19 1.40 (3.09)
Peruvian Sol 3.37 3.38 3.33 1.53 1.16 MALAYSIA 3.70 (11) (39)
Polish Zloty 3.74 3.83 3.77 1.66 (0.91) ROMANIA 4.49 (34) (32)
Turkish Lira 5.29 5.84 5.74 1.73 (7.84) PHILIPPINE 5.12 (48) (190)
Thai Baht 32.33 31.53 30.96 1.83 4.42
INDIA 6.84 (29) (52)
Czech Koruna 22.43 23.14 22.69 2.00 (1.14)
Taiwanese Dollar 30.55 31.60 30.96 2.06 (1.34) RUSSIA 7.46 (45) (124)
Brazilian Real 3.88 3.92 3.84 2.16 1.08 INDONESIA 7.53 (49) (45)
South African Rand 14.35 14.58 14.24 2.42 0.78 SOUTH AFRICA 8.92 (20) (36)
South Korean Won 1,111 1,191 1,162 2.49 (4.39) TURKEY 17.30 (124) 150
Argentine Peso 37.67 44.79 43.35 3.33 (13.10)
Russian Ruble 69.35 65.44 63.34 3.33 9.50
Mexican Peso 19.65 19.62 18.97 3.42 3.60
UNITED STATES 1.98 (14) (70)
Colombian Peso 3,254 3,380 3,241 4.26 0.39 EURO (0.29) (9) (53)

DXY Index 96.17 97.75 96.70 (1.08) 0.55 JAPAN (0.15) (6) (16)

Source: Bloomberg and Mandiri Sekuritas

4
 Foreign fund inflows behind INDOGB rally in June-19

Net Buy/(Sell)
Total
Jan-19 Feb-19 Mar-19 Apr-19 May-19 19-June-19 YTD 2018 FY 2018
YTD 2019
Bank 39.2 3.4 (0.7) (12.4) (24.3) (8.1) (2.8) 16.2 63.8
Bank
2.1 (0.2) 2.5 (9.2) 21.0 (3.6) 12.4 10.8 37.5
Indonesia
Insurances+
Pension Fund
8.4 5.4 0.7 3.0 5.7 (0.5) 22.7 48.6 80.2
+ Mutual
Fund
Non Resident 16.7 32.8 24.4 (6.8) (10.8) 9.2 65.4 7.6 57.2

Individual (0.0) (0.7) 10.2 0.3 1.3 (5.8) 5.3 1.9 13.2

Others 3.1 8.3 4.0 (0.8) 11.4 0.5 26.5 11.8 16.7

TOTAL 69.4 49.1 41.0 (26.0)* 4.4* (8.4) 129.6 97.0 268.7

*) There are Rp80tn and Rp59tn maturing IDR government bonds in April and May 2019

Source: Bloomberg and Mandiri Sekuritas 5

Trade War Impact: The chances of China sell-off its
UST is still low
China is the biggest foreign net seller of US Treasury In the last one year, the 10-yr US Treasury yield has still
bonds in the last one year, while the biggest buyer is fallen by 33 bps to 2.41% as of March 2019
Belgium
% of % of
As of
yoy total total
March UST yield (LHS %) Bund Yield (LHS %)
Country Changes foreign foreign
2019
(USD bn) March March Japan (LHS %) China (RHS USD bn)
(USD bn)
2018 2019
3.50 1,200
Top 8 Biggest Net Seller
China, Mainland 1,121 (67) 19% 17%
3.00
Ireland 278 (41) 5% 4% 1,180
Switzerland 226 (19) 4% 3%
Poland 34 (6) 1% 1%
2.50
India 152 (5) 3% 2% 1,160
United Arab Emirates 56 (4) 1% 1% 2.00
Mexico 45 (2) 1% 1%
Taiwan 169 (1) 3% 3% 1.50 1,140
Top 8 Biggest Net Buyer
Belgium 187 60 2% 3% 1.00
1,120
Norway 100 59 1% 2%
United Kingdom 317 54 4% 5% 0.50
Cayman Islands 220 53 3% 3% 1,100
Japan 1,078 34 17% 17% -
France 110 29 1% 2%
Thailand 84 27 1% 1% (0.50) 1,080
Brazil 312 26 5% 5% Mar-18 Jul-18 Nov-18 Mar-19

Total Foreign Holders of

6,473 250 100% 100% Source: Federal Reserve Board as of March 2019
US Treasury
6
What to expect going forward?
Still seeing INDOGB positively this year
1. Bond yields already undervalued. We use four independent variables in our multiple
regression model i.e. 10-yr UST yield, BI 7drr rate, 5-yr CDS and rupiah against USD.
10.00
Sep-15
9.50 GIDN10yr GIDN10yr-Fit
9.00
8.50
8.00 Nov-16

7.50
7.00
6.50
6.00
5.50
5.00
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
1.50
Error
1.00 Sep-15
Nov-16
0.50

(0.50)

(1.00)

(1.50)
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

Source: Bloomberg and Mandiri Sekuritas as of 13-May-2019 7

 Three main differences between 2019 and 2018:
1. FFR flat or lower; 2. UST bond yields falling; 3. Lower US GDP
growth outlook

FDTR Index (L1) USGGR10YR Index (L1) Probability of Hike

DXY Curncy (R1) Probability of No Change (2.25-2.5)
Probability of Cut
3.50 100

100
98
3.00
90

80
96
2.50 70

94 60

50
2.00
92 40

30
1.50
90 20
2018
10
1.00 88
0
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19
May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19

Source: Bloomberg and Mandiri Sekuritas as of 20-June-2019 8

Fed Fund Rate, UST yield, INDOGB yield and BI7drr rate

FOMC Meeting June 2019:

Fed Fund Futures (Market)

Fed Dot Plots (Median - Jun 2019)

Fed Dot Plots (Median - Mar 2019)

Fed Dot Plots (Median - Dec 2018) Changes

Fed Dot Plots (Median - Sept 2018)
3.80 UST Yield GIDN Yield
USD/IDR
(bps) (bps)
3.38 3.38
3.30 Oct'08 - Nov'09 -40 -302 -1%
3.13 3.13 3.13
Apr-Oct'10 -135 -159 -1%
2.88
2.80
2.63 2.63
Apr'11 - Jul'12 -190 -224 9%
2.38 2.38 2.38
Dec'13 - Jan'15 -121 -162 8%
2.30
2.13 Jan - Jul'16 -82 -206 -6%
1.80
Oct'18- today -115 -70 -6%
1.70

1.45
1.30 1.33
YE2018 YE2019 YE2020 YE2021
Easier or Tighter?
COUNTRY RATE CHANGE DATE YTD 2018 2017 2016
GHANA 16.00% -100 28-Jan-19 -100 -300 -550 -50
ARMENIA 5.75% -25 29-Jan-19 -25 0 -25 -250
EGYPT 15.75% -100 14-Feb-19 -100 -200 400 550
GAMBIA 12.50% -100 28-Feb-19 -100 -150 -800 0
GEORGIA 6.50% -25 13-Mar-19 -50 -25 75 -150
PARAGUAY 4.75% -25 22-Mar-19 -50 0 -25 -25
NIGERIA 13.50% -50 26-Mar-19 -50 0 0 300
KAZAKHSTAN 9.00% -25 15-Apr-19 -25 -100 -175 -400
UKRAINE 17.50% -50 25-Apr-19 -50 350 50 -800
CONGO DEM. REP. 9.00% -500 30-Apr-19 -500 -600 1300 500
MALAWI 13.50% -100 3-May-19 -250 0 -800 -300
RWANDA 5.00% -50 6-May-19 -50 0 -75 -25
MALAYSIA 3.00% -25 7-May-19 -25 25 0 -25
NEW ZEALAND 1.50% -25 8-May-19 -25 0 0 -75
PHILIPPINES 4.50% -25 9-May-19 -25 175 0 -100
JAMAICA 0.75% -50 20-May-19 -100 -150 -100 -25
ICELAND 4.00% -50 22-May-19 -50 25 -75 -75
ANGOLA 15.50% -25 24-May-19 -100 -150 200 500
KYRGYZSTAN 4.25% -25 27-May-19 -50 -25 0 -500
SRI LANKA 7.50% -50 31-May-19 -50 75 25 100
TAJIKISTAN 13.25% -150 31-May-19 -75 -200 500 300
AUSTRALIA 1.25% -25 4-Jun-19 -25 0 0 -50
INDIA 5.75% -25 6-Jun-19 -75 50 -25 -50
AZERBAIJAN 8.50% -25 7-Jun-19 -125 -525 0 1200
CHILE 2.50% -50 7-Jun-19 -25 25 -100 0
RUSSIA 7.50% -25 14-Jun-19 -25 0 -225 -100
INDONESIA 6.00% 25 15-Nov-18 0 175 -50 -150
CZECH REPUBLIC 2.00% 25 2-May-19 25 125 45 0
HONDURAS 5.75% 25 4-Jan-19 25 0 0 -75
NORWAY 1.00% 25 21-Mar-19 25 25 0 -25
ZAMBIA 10.25% 50 22-May-19 50 -50 -525 0
TUNISIA 7.75% 100 19-Feb-19 100 175 75 0
PAKISTAN 12.25% 150 20-May-19 225 425 0 -25
ARGENTINA 62.50% 250 1-Apr-19 250 3125 400 -

Source: Central Bank Info 10

 Impact on Inverted US Treasury Yield Curve
Impact from inverting to recession
Month from
2-10yr yield curve Recession 10yr UST 10-yr
inversion to DXY (% IDR (% 5yr-CDS JCI (%
inverts start date FFR (ppt) yields INDOGB
recession changes) change) (ppt) change)
(ppt) (ppt)
18-Aug-78 Feb-80 17.7 -4.0% 6.0 2.8 na na na na

12-Sep-80 Aug-81 10.8 31.3% 5.5 3.3 na na na na

13-Dec-88 Aug-90 19.9 -4.6% (0.4) (0.9) na na na 266%

26-May-98 Apr-01 34.7 17.7% (0.5) (0.7) -0.2% na na -12%

31-Jan-06 Jan-08 23.3 -13.8% (0.3) (0.5) 0.2% (51.7) (3.1) 123%

Median 19.9 -4.0% (0.3) (0.5) 0.0% (51.7) (3.1) 122.8%

Average 21.3 5.3% 2.1 0.8 0.0% (51.7) (3.1) 125.7%

Impact US recession
Start Date End Date Month during 10yr UST 10-yr
Characteristic DXY (% IDR (% 5yr-CDS JCI (%
Recession Recession recession FFR (ppt) yields INDOGB
changes) change) (ppt) change)
(ppt) (ppt)
Paul volckers Feb-80 Jul-80 5.0 -1.2% (4.5) (1.2) na na na na

Iran revolution Aug-81 Nov-82 15.2 11.3% (6.0) (4.1) na na na na

Oil price shocked Aug-90 Mar-91 7.1 -3.0% (1.8) (0.2) na na na -37%

Dot com Apr-01 Nov-01 7.1 -2.4% (2.5) (0.7) 1% na na 0%

Sub prime mortgage Jan-08 Jun-09 17.2 3.3% (4.0) (0.4) 10% 154.7 0.3 -27%

Median 7.1 -1.2% (4.0) (0.7) 5% 154.7 0.3 -27%

Average 10.3 1.6% (3.8) (1.3) 5% 154.7 0.3 -21%

11
What to expect going forward??
Still seeing INDOGB positively this year
2. Foreign still views Indonesia positively and high support from onshore investors (Bank Indonesia and non
banks institutional investors)
We track daily nonresident INDOGB (exclude sukuk)
cumulative flows from 2016 to 16-May-2019. Still dominating by longer tenors bond series
0-1 >1-2 >2-5 >5-10 >10-15 >15-20 >20

1,000.0

900.0

800.0

700.0

600.0

500.0

400.0

300.0

200.0

100.0

-
Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19

12
Indonesia bond yield (still) offer the highest real yield
compared to other EM Countries
10Y YTM FOREX Inflation (%)

Expected Current 10-yr Real Yield

Country S&P Rating
14-Jun-19 FY19 Forecast Spot (appreciation) FY19 Forecast
Current Real Yield (%) (Nominal
Inflation (yoy) yield - exp.
/depreciation
Inflation) (%)
Czech Repub. AA- 1.63 22.24 22.80 (2.45) 2.50 2.90 (1.28) (1.08)
Hungary BBB 2.74 277.00 287.59 (3.68) 3.30 3.90 (1.16) (0.36)
S. Korea AA 1.59 1,140 1,185 (3.81) 1.10 0.70 0.89 0.49
Poland A- 2.40 3.70 3.80 (2.56) 1.90 2.40 (0.00) 0.70
Thailand BBB+ 2.10 31.80 31.24 1.80 1.00 1.15 0.95 0.70
Turkey B+ 18.04 6.50 5.90 10.26 17.40 18.71 (0.67) 0.74
Malaysia A- 3.72 4.11 4.17 (1.34) 1.25 0.20 3.52 1.72
India BBB- 6.92 70.00 69.80 0.29 3.00 2.47 4.45 1.92
Philippines BBB+ 5.22 53.20 52.02 2.27 3.10 3.20 2.02 2.12
Peru BBB+ 4.81 3.29 3.35 (1.70) 2.25 2.73 2.08 2.81
Russia BBB- 7.73 65.50 64.40 1.71 4.90 5.10 2.63 2.83
Colombia BBB- 6.21 3,110 3,274 (5.01) 3.25 3.31 2.90 3.01
Mexico BBB+ 7.67 19.50 19.15 1.80 3.96 4.28 3.39 3.67
Brazil BB- 7.90 3.80 3.90 (2.47) 3.90 4.66 3.24 4.00
Indonesia BBB 7.68 14,175 14,325 (1.05) 3.17 3.32 4.36 4.18
South Africa BB 9.11 14.00 14.82 (5.55) 4.60 4.40 4.71 4.61

13
 We maintain Indonesia’s sovereign rating outlook to be stable
this year and possibly it will be upgraded in 2020

Economic Indicators 2016 2017 2018 2019F 2020F

Nominal GDP (USD bn) 932 1,015 1,020 1,067 1,175
Current Account ( % of GDP) (1.8) (1.7) (3.0) (2.5) (2.3)
Inflation (% YoY) 3.5 3.6 3.13 3.5 3.2
Govt Debt per Govt Revenue (%) 1.9 2.0 2.0 2.0 2.0
Govt Primary Balance to GDP (%) (1.0) (0.8) (0.0) (0.13) 0.01
Govt Fiscal Balance to GDP (%) (2.4) (2.7) (1.8) (1.8) (1.7)
GDP per capita 3,604 3,859 3,888 4,110 4,319
FX reserve (USD bn) 116 130 120 125 130

Probability based on Ordinal logit model

Upgraded upper BBB 60.3% 61.6% 57.5% 63.6%
Stay at BBB 21.4% 20.9% 22.4% 20.1%
Downgraded below BBB 18.4% 17.5% 20.1% 16.3%
Total 100.0% 100.0% 100.0% 100.0%

Colour key
Improvement relative to previous year
Deteroriation relative to previous year

Source: Bloomberg, IMF and Mandiri Sekuritas 14

 What to expect going forward??
Still seeing INDOGB positively this year
3. Supply/demand outlook still very manageable
The Government has already issued Rp521.9tn-gross On average, total bids for conventional bond auction is Rp52tn
ytd or 63.2% of full year target with total issuances of Rp22tn per auction ytd

Budget
Government budget deficit financing 2019 (Rp tn) (Baseline) Total Bid Total Issuance
2019 Rp tn
Budget deficit % of GDP 1.84 100
Budget deficit (Rp tn) 296.0
Redemption, Cash Management & Buyback (436.7) 90
Government bond nett issuances 389.0
Government bond gross issuances 825.7 80

Realized issuance as of 19-June-2019 521.9 70

Domestic bonds 403.0
Auction conventional FR/ VR and T-Bills/ ZC 264.7 60
Retail bonds (ORI & Sukuk) 33.1
Domestic sukuk 87.2 50
Private placement 17.9
40
Global bonds 118.9
Scen 1 30
28.25 27.75
Remaining Sukuk issuances (13 auction @Rp6.7tn 23.2 25 24.95 23.4 24
22 21.57
absorbed) 87.2 20 18.05 15.72
Retail bond and Private placement 27.4
10.8
Global Bond - 10
Total 114.5
Remaining rupiah conventional issuances 189.2 0
Average issuance on every auction (12 auction left) 15.8 3-Jan 29-Jan 26-Feb 26-Mar 23-Apr 21-May

*) Assuming IDR non auction portion is 9.5% of gross issuances Source: DMO and Mandiri Sekuritas
15
 3) Budget deficit targeted at -1.84% of GDP in 2019
The fiscal has been prudently managed in 2018, as it reported a deficit of only 1.76% of GDP (vs.
-2.2% of GDP initial target)

Items FY15 FY16 FY17 FY18 APBN 2018 APBN 2019

Budget Balanced (292.0) (305.3) (341.0) (259.9) (326.0) (296.0)
(% of GDP) -2.52% -2.46% -2.53% -1.75% -2.20% -1.84%
Total Revenue 1,504.5 1,555.0 1,666.3 1,942.4 1,894.7 2,165.1
(% of GDP) 13.0% 12.5% 12.4% 13.1% 12.8% 13.5%

(% change) -3.0% 3.4% 7.2% 16.6% 13.7% 11.5%

Tax revenue 1,240.4 1,284.9 1,343.5 1,521.4 1,618.1 1,786.4

(% of GDP) 10.7% 10.4% 10.0% 10.3% 10.9% 11.1%

(% change) 8.2% 3.6% 4.6% 13.2% 20.4% 17.4%

Total Expenditure 1,796.5 1,860.3 2,007.4 2,202.3 2,220.7 2,461.1
(% of GDP) 15.5% 15.0% 14.9% 14.8% 15.0% 15.3%

(% change) 1.7% 3.6% 7.9% 9.7% 10.6% 11.8%

Energy Subsidies 119.1 106.8 97.6 153.5 94.5 160.0

Non-Energy Subsidy 66.9 67.4 68.8 63.3 61.7 64.3

Primary balance (136.0) (122.5) (124.5) (1.8) (87.4) (20.1)
(% of GDP) -1.2% -1.0% -0.9% 0.0% -0.6% -0.1%

Source: MoF and Mandiri Sekuritas 16

 Fiscal realization as of Mar -2019
still consistent in keeping the budget deficit under 2% of GDP and the primary
balance closer to the balance
Mar 2019 Mar 201%
Mar 2019 Mar2018
Rp tn Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 % of FY % of FY
%yoy %yoy
Target Target

A. Revenue and Grant 283.7 247.6 295.1 333.6 350.10 4.9% 13.1% 16.2% 17.6%
I. Domestic Revenue 283.6 247.6 295.1 333.3 350.0 5.0% 13.0% 16.2% 17.6%
1. Tax revenue 235.8 204.8 237.7 262.3 279.9 6.7% 10.3% 15.7% 16.2%
a. Domestic tax 227.4 196.0 229.2 252.5 270.3 7.1% 10.2%
b. International Trade Duty 8.4 8.8 8.5 9.8 9.6 -1.8% 15.1%
2. Non-tax revenue 47.8 42.8 57.4 71.0 70.0 -1.3% 23.8% 18.5% 25.8%
II. Grant 0.1 - 0.0 0.3 0.1 -62.4% 1983.3%
B. Expenditure 367.4 390.9 400.0 419.5 452.1 7.8% 4.9% 18.4% 18.9%
I. Central Government Expenditure 197.0 193.5 204.8 233.9 260.7 11.5% 14.2% 16.0% 16.1%
1. Personnel expenditure (RHS) 62.4 73.1 74.0 77.0 84.1 9.2% 4.1%
2. Material expenditure 15.5 24.6 31.7 35.2 37.7 7.1% 11.1%
3. Capital expenditure 3.9 10.2 11.8 9.7 9.1 -6.7% -17.7%
4. Interest payment 42.4 52.9 65.1 68.5 70.6 3.0% 5.2%
5. Subsidy 57.5 21.2 12.3 25.2 21.8 -13.4% 104.3%
6. Grants Expenditure - 0.0 0.0 0.0 #DIV/0! -100.0%
7. Social assistance 14.9 9.2 9.5 17.9 37.0 106.5% 87.6%
8. Other expenditures 0.4 2.3 0.4 0.4 0.6 38.7% 8.9%
II. Transfer to Region and Village Fund 170.4 197.4 195.2 185.6 191.3 3.1% -4.9% 23.1% 24.2%
C. PRIMARY BALANCE (41.3) (90.4) (39.8) (17.3) (31.4) 81.4% -56.5% 34.4% 26.3%
D. FISCAL SURPLUS/DEFICIT (A-B) (83.7) (143.3) (104.9) (85.9) (102.0)
As a percentage of GDP -0.72% -1.15% -0.78% -0.58% -0.63%
Nominal GDP (assumption) 11,565.9 12,407.1 13,455.0 14,840.0 16,087.0
E. FINANCING 187.0 148.2 177.5

17
Using historical revenue and spending pattern average in the last five years,
then budget deficit this year will potentially still lower than 2% of GDP

2014
50.0 2015
Rp Trillion

- 2016
2017
(50.0)
2018
(100.0) 2019
Forecast 2019
(150.0)

(200.0)

(250.0)
-1.84% of GDP
(300.0)

(350.0)

(400.0)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

18
Demand Projection:
Support from onshore investors will remained high

Total Ownership - Rp Trillion

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 2019F

Bank (excl reverse repo) 260.3 285.8 348.9 375.8 453.6 517.4 555.2
Central Bank 119.5 131.4 150.1 157.9 179.8 217.4 223.6
Mutual Fund 42.5 45.8 61.6 85.7 104.0 118.6 134.3
Insurance and Pension Fund 169.0 193.9 221.4 325.5 348.9 414.5 458.5
Foreign 323.8 461.4 558.5 665.8 836.1 893.4 1,031.1
Others 80.0 91.7 121.3 162.6 177.3 207.3 233.5
IDR government bonds outstanding 995.3 1,210.0 1,461.8 1,773.3 2,099.8 2,368.5 2,636.1

Net Buy (sell) - Rp Trillion

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 2019F

Bank (excl reverse repo) 42.1 25.4 63.1 26.9 77.8 63.8 60-70
Central Bank 35.1 11.9 18.7 7.8 22.0 37.5 55-75
Mutual Fund (0.7) 3.3 15.8 24.1 18.3 14.6 20-30
Insurance and Pension Fund 29.1 24.9 27.5 104.1 23.3 65.6 50-60
Foreign 53.3 137.5 97.2 107.3 170.3 57.2 20-80
Others 16.1 11.7 29.6 41.3 14.7 30.0 60-70
Total Net Issuances IDR government
175.0 214.7 251.9 311.4 326.5 268.7 325.0
bonds

19
 IDR Government Bond Yield Outlook 2019

We still view the INDOGB rally potentially will continue lowering, we will also be lowering the 10yr INDOGB yield to
7-7.25% for the end of this year and potentially lower, below than 7%, for next year, as we also revise down our
forecasts for BI rate from initially 6% to 5.5% and 10yr UST yield from 2.6% to 2.2% by YE 2019.

2014 2015 2016 2017 2018 2019F

10-yr US Treasury Outlook 2.17 2.27 2.44 2.41 2.68 2.2-2.4

7drr BI Rate Outlook 7.75 7.50 4.75 4.25 6.00 5.5-5.75

5yr CDS Outlook 160 230 158 85 137 90-100

14,000-
IDRUSD Outlook 12,435 13,856 13,492 13,588 14,417
14,300

10-yr INDOGB Outlook 7.80 8.99 7.97 6.32 8.03 7.0-7.25

20
 Conclusion

• We still maintain our positive view on INDOGB 2019. Recent sell-off on

INDOGB is a buying opportunity, in our view.
• Some positive catalyst factors are as follows: 1) Cheap valuation based on
our fair yield model. 2) No massive foreign outflow and support from
onshore investors has remained high. 3) Supply/demand of bonds have
remained very manageable.
• Our fair value for 10-yr is 7-7.25% by YE2019, assuming 10-yr UST yield at
2.2-2.4%, 7drr rate at 5.5-5.75%, 5yr CDS at 90-100, and rupiah at 14,000-
14,300 against USD.
• The risks are mostly coming from external, i.e. if risk-off sentiment continues
rising, thus pushing rupiah to depreciate further to more than
Rp15,000/USD, or if oil price increases to more than 80 usdpbrl.

21
 Thank you
DISCLAIMER: This report is issued by PT. Mandiri Sekuritas, a member of the Indonesia Stock Exchanges (IDX) ) and Mandiri Sekuritas
is registered and supervised by the Financial Services Authority (OJK). 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 62-21-5263445.

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.