BNIS Fixed Income Daily Report of May 17, 2018
Bond Market Review (Wed, 16/5)
Another downside movement took place on Indonesia’s bond market yesterday. The Government bond yields climbed by about 1-12 bps along the curve, where the 10-year government bond yield jumped 11 bps to 7.16%. The IDR weakened and closed at IDR14,097/USD yesterday, compared to the previous day’s closing of IDR14,037/USD.
The outright trading volume of Government securities was only recorded at IDR11.7 trillion, lower than year-to-date average daily volume of IDR15.2 trillion. FR0063 and FR0064 were the two most actively traded series in the secondary market with the trading volume of IDR1.4 trillion and IDR1.3 trillion, respectively. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR953,4 billion.
Bond Market Preview (Thu, 17/5)
The external sentiments are still expected to become risk factors which will give an impact to the Indonesia’s bond market. The upside trend on the US Treasury yields continued, where the 10-year US Government bond yield rose 3bps to 3.10% last night, the highest level since early July 2011. The higher US Treasury yields was still triggered by increasing investors expectation on a more aggresive stance from The Federal Reserve, in which the market participants expect the US central bank to raise its benchmark interest rate by four times this year. After raising its benchmark interest rate on March 2018, The Federal Reserve is expected to increase its Fed Fund Rate (FFR) on June, September, and December 2018, where the probability of increasing FFR on that periods reaches 100%, 84%, and 59%, respectively. The continuing US Treasury yield hike may also open the possibility of higher Indonesia’s bond yields. However, on the flip side, the potential of significant increase on Indonesia’s bond yields may be limited by investors’ expectation on the higher 7-day Reverse Repo Rate, which may ease the pressure on the IDR. About 16 of 29 economist which was surveyed by Bloomberg expects that the Bank Indonesia will raise its benchmark interest rate by 25bps to 4.50% on today’s board meeting.
Shortening-duration strategy may still attractive to be adopted by investors in near term amid external pressure. Several short-end and the belly series of Government bonds i.e. FR0048, FR0069, FR0035, FR0043, and FR0070 can be an alternative choice for investors.
Economics and Indonesia Bond Market News
PEFINDO rating agency has affirmed the rating of idAAA for PT Bank Rakyat Indonesia (Persero) Tbk (BBRI), the company’s outstanding Shelf Registration Bond I 2015, and Shelf Registration Bond II 2016 up to IDR20.0 trillion. The outlook for the corporate rating is stable. At the same time, PEFINDO also assigned its idAA for the company’s Subordinated Bond Issuance III 2018 totaling to IDR500.0 billion. According to PEFINDO, the corporate rating reflects the Bank’s very strong and proven support from the Government, its superior business position, as well as very strong profitability and capitalization. However, the rating is still constrained by potential pressure on its Non Performing Loans due to the challenging economic conditions.
PT BFI Finance Indonesia Tbk. will issue bonds with total issuance of IDR800.0 billion. The bond under the name of Shelf Registration Bond IV Phase I 2018 is a part of Shelf Registration Bond IV issuance plan with a target issuance of IDR8.0 trillion. The bonds will be released in 3 Series, Series A has a tenor of 370 days, Series B with a tenor of 2 years, and Series C has a tenor of 3 years. Public offering will be held in June 4-5, 2018. The bonds will be electronically distributed on June 8, 2018, and will be listed in Indonesia Stock Exchange on June 20, 2018. In addition, according to data from Custodian Central Effect Depository, the total bonds issuances since the beginning of this year had reached IDR4.9 trillion, 48% higher than the same period last year of IDR27.6 trillion. This indicates a strong appetite from companies in Indonesia to issue debt instrument as their funding source.