MBono market liquidity--measured as average trading volume--has remained relatively stable. Interbank activity has increased significantly compared to last year, however, to a share of 74% of total trading volume YTD, compared to 51% in 2021. In contrast, foreign investor liquidity is diminishing, to a share of only 14% YTD in the total trading volume (the lowest since 2007) compared to 38% last year. In the last two years, local investors have dominated the market, and in terms of flows, they continue to finance government needs. In contrast, foreign share of the MBono market has dwindled sharply during the past year as foreign investment flows out.
Liquidity among local pension funds has remained low, though during the year the turnover and average trading volume improved slightly. Activity staged a particularly brisk comeback at the belly and long end of the curve, which is in line with their higher appetite for duration. Meanwhile, local mutual funds’ liquidity has been relatively stable YTD and turnover has increased somewhat in recent months. Other local investors remained the smallest player in the market, but with steadily rising activity.
Udibono market liquidity--again measured as trading volume—has improved this year, after remaining stable in the past few years. Local pension funds and other investors increased their share of total trading volume in Udibonos. Foreigner investors have also become more active in the market although they remain a minor player in the market.
Interbank trading volume and ticket per trade in the Udibono market have increased recently. While average trading volume among other local investors rose steadily, the ticket per trade also increased, suggesting fewer trades overall.
Generally speaking, in recent years local investors have dominated the market, and in terms of flows, they continue to finance government needs. In contrast, foreign share of the MBono market has dwindled sharply during the past year as foreign investment flows out. On the other hand, after a couple of years of high inflation readings, activity in the Udibono market has improved among all players. Even foreign investors have been more active in the Udibono market, improved in tandem with inflows over the last months, which makes sense as real rates are offering attractive returns given surprisingly high inflation. Whether or not this appetite for Udibonos is a lasting phenomenon, real rates may remain more dynamic as inflation will probably remain the name of the game.