INDONESIA: 2-Yr Premium Suggests BI Hold: Front End Remains Attractive

* Bond yields are lower ahead of the BI decision later with the 5-Yr the outperformer, down -6bps at 6.87% as growing evidence suggests that some general insurers began asset allocating out of equities into bonds, when the 5-Yr was trading through 7%. * Whilst the JCI is down around -27% YTD, from the June lows to current levels, the index has gained +18% - enough for some general insurers to de risk. * The 2-Yr is down -2bps today at 6.74% and the 10-Yr down -3.6bps at 7.06% - resulting in a modest flattening of the curve. * After the initial shock of the surprise 50bps rise earlier this year, and the subsquent rate rises - a growing consensus is forming domestically that the BI could be done here. * Whilst an imperfect indicator, the 2-Yr yield premium over the BI base rate provides a useful guide to expectations. Since the peak of early June when rates were being used to support the Rupiah, its clear that the front end volatility has subsided. * The BI decision, using this indicator is not a certainty, but the moderation of the premium suggests that fears of further, continuous rate hikes are susbiding. * There is a strong consensus for today that the BI is on hold. At current l