IndoGB prices rebounded in the last week of November as above 8% yield continued to grab decent buying. All benchmark bonds yield were down by an average 29bps WoW, with the biggest gain recorded by the 5y benchmark FR0053 which settled to 7.81% (-.42bps WoW) after touching a high of 8.23% in the previous week trading. November, however, was marked as a dismal month for bond market with foreign monthly sell-off reached a total of IDR19.6trn, the biggest monthly net sell this year. Market sentiments though remain cautious as the Fed prepares to raise rate hike next month which might deter investors buying interest. The US economic data continued to support rate December rate hike with recent preliminary GDP in 3Q16 grew at a faster rate of 3.2%, higher than initial reading of 2.9%. Such strong economic data would further bolster fed rate hike view on 13-14 Dec FOMC meeting.
On domestic front, Indonesia’s inflation in November accelerated to 3.58% YoY from 3.31% YoY in the preceding month. Rising inflation last month was mainly driven by rising prices of shallots, chilies and tomatoes. The core inflation rate, which excludes administered and volatile food prices, remains steady at 3.07%, relatively unchanged from 3.08% in October. Year to date inflation reached only 2.59%. As we have one more month in 2016, the BI thus expects the inflation would reach only 3%-3.2% in 2016. Note that low inflation is the main factor that allows Bank Indonesia (BI) to cut its policy rate six times this year.