BNIS Fixed Income Daily Report of May 16, 2018
Bond Market Review (Tue, 15/5)
Indonesia bond prices were mixed in a narrow range yesterday. The Government bond yields only moved between 1-4 bps along the curve, where the 10-year yield slightly increased by 1 bps to 7.05%. The IDR weakened and being closed at IDR14,037/USD yesterday, compared to the previous day’s closing of IDR13,973/USD.
The outright trading volume of Government securities was only recorded at IDR7.4 trillion, lower than the previous day’s volume of IDR8.2 trillion. FR0056 and FR0075 were the two most actively traded series in the secondary market with the trading volume of IDR1.5 trillion and IDR1.1 trillion, respectively. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR1.1 trillion.
Bond Market Preview (Wed, 16/5)
Indonesia’s bond yields are expected to climb in near term amid increasing US Treasury yields. The 10-year US Government bond jumped 7 bps and closed at 3.07% last night, the highest level since mid-2011. The higher US Treasury yields was triggered by increasing investors’ expectation on the possibility of a more aggressive stance from The Federal Reserve to raise its benchmark interest rate amid strong US retail sales and manufacturing data. The higher US Treasury yields was also spurred the strengthening USD against global currencies which can be spotted from increasing DXY index to 93.3, the highest level this year. The strengthening USD was also triggered the weakening of Asian currencies including IDR. These external sentiments are expected to bring an impact to Indonesia’s bond market, open a possibility of increasing yields in near term. The less aggressive stance from investors in domestic bond market, which was reflected from lower daily trading volume in Government securities on the last few days, may also limits the potential of declining yields in near term.
Along with the potential market correction, then shortening-duration strategy will be more attractive to be adopted by market participants, where several short-end and the belly series of Government bonds i.e. FR0069, FR0035, FR0043, and FR0070 can be an alternative choice in near term.
Economics and Indonesia Bond Market News
The Government has issued IDR4.1 trillion of Sukuk through yesterday’s auction. Total investors’ bid on yesterday’s auction reached IDR9.1 trillion, lower than the year-to-date average sukuk auction of IDR15.8 trillion. The increasing external pressure was limiting investors’ participation on this auction. As our previous expectation, investors’ demand were higher on the shorter maturities which could be spotted from higher investors’ bid on SPNS03112018 and PBS016 series, where the investors’ bid on these series reached IDR4.2 trillion and IDR1.5 trillion, respectively. Following yesterday’s sukuk auction, year-to-date, the Government has successfully issued IDR394.5 trillion of Government securities, or about 46.7% of total issuances target in 2018.
MUFG Bank will issue negotiable certificates of deposit (NCD) with total issuance value of IDR250.0 billion. The NCD will be offered in 3 Series; Series A has a value of IDR80.0 billion with a tenor of 6 months and a coupon of 5.75% per annum, Series B in amount of IDR50.0 billion has a tenor of 9 month and a coupon of 5.90% per annum, and Series C with total nominal of IDR120.0 billion has a tenor of 12 months and a coupon of 6.07% per annum. With the NCD issuance from MUFG Bank, total NCD issued since the beginning of this year will reach IDR2.2 trillion.