BNIS Fixed Income Daily Report of May 30, 2018
Bond Market Review (Mon, 28/5)
Indonesia’s bond prices extended its positive trend in early this week amid easing external pressure as well as strengthening IDR. Most of Government bond yields fell by about 5 – 25 bps, where the 10-year government bond yield declined by 21 bps to 7.11%. The strengthening bond prices was also followed by strengthening IDR to IDR13,995/USD on Monday’s closing, compared to the last week’s closing of IDR14,125/USD.
The bond market strengthening was also followed by solid trading in the secondary market, in which the outright trading volume of Government securities was recorded at IDR12.2 trillion, higher than Friday’s trading volume of IDR10.2 trillion. FR0064 was the most actively traded series in the secondary market with the trading volume of IDR2.8 trillion. Meanwhile, the outright trading volume of corporate bonds reached IDR2.0 trillion on Friday.
Bond Market Preview (Wed, 30/5)
Indonesia’s bond prices are predicted to move in a narrow range amid variations of sentiment from both global and domestic. Global pressure increased after investors’ concern about political crisis that hit Italy earlier this week. This lead an increasing global investor demand to safe haven assets, which can be seen from declining European and US stock indexes followed by decreasing US Treasury Yields, Germany Bunds and UK Gilts. This also can limit global fund flow to emerging market including Indonesia. On the other hand, geopolitical tensions between the US and China following debate between the two countries’ representatives in the World Trade Organization (WTO) meeting on the issue of theft of US corporate ideas by China’s. However, the global pressures to domestic bond market may be curbed by higher investors’ optimism on the positive IDR movement. The next investors’ focus will be on the additional monthly Board of Governors’ Meeting of Bank Indonesia (RDGBI) today, where BI is predicted to have more benchmark interest rate (7 Day Reverse Repo Rate/ 7DRRR) hike by 25 bps to 4.75%. Market participants are optimistic that it will have a positive impact on the IDR, and provide a positive catalyst for the domestic bond market
Along with the potential of limited movement of bond prices, short-term trading strategy on the benchmark series of Government bonds i.e. FR0063, FR0064, FR0065 and FR0075 may become an attractive choice for investors. Additionally, several Government bond series, FR0043, FR0040, FR0052, and FR0054 can be an alternative option amid attractive yield offered on these series.
Economics and Indonesia Bond Market News
Indonesian Government will hold another sukuk auction today, with the indicative target of IDR4.0 trillion. On today’s sukuk auction, the government will offer six series of Sukuk such as SPNS01122018, PBS016, PBS002, PBS017, PBS012, and PBS004. The indicative target on today’s auction is similar with the last sukuk auction (May 15, 2018), and lower than average indicative target during the first nine sukuk auctions in 2018 of IDR8.0 trillion per auction. Investors’ demand is expected to be higher amid easing global market volatility. However, similar with previous Sukuk auctions, investors’ demand on the short-end series of sukuk such as SPNS01122018 and PBS016 series are expected to be higher. The Government is not also expected to be too aggressive on this auction. Hence, if investors’ bid yields are relatively high, the Government may not absorb it. Yet, on the flip side, if investors’ bid yield are relatively low, the Government is expected to issue Sukuk higher than the indicative target. Taking into account for the market condition on the last few days, we predict that indicative yields for today’s auction are following:
SPNS01122018 : 4.40% – 4.60%
PBS016 : 6.40% – 6.50%
PBS002 : 6.85% – 7.00%
PBS017 : 7.60% – 7.75%
PBS012 : 7.95% – 8.10%
PBS004 : 8.05% – 8.20%
PEFINDO rating agency has affirmed the rating of idA+ for PT Pembangunan Perumahan (Persero) Tbk (PTPP) and the company’s Shelf Registration Bond I PTPP 2013 – 2015. In addition, PEFINDO has also assigned the rating of idA- for the company’s perpetual bond issuance of a maximum amount of IDR8.0 trillion. For the first phase, the company plans to issue IDR150.0 billion of perpetual bonds. The proceeds from the perpetual bond issuance will be used to finance PTPP’s capital expenditure (capex). The outlook for the corporate rating is stable. PEFINDO stated that the Company’s rating reflects its strong presence in the national construction industry, diversified revenue sources, and above average cash flow protection measures. However, on the flip side, the rating is still constrained by potentially higher financial leverage in near to medium term following significant capex, risk from expansion into new businesses, and relatively volatile business environment.