Please find attached our BNIS Fixed Income Daily Report of December 7, 2018
Bond Market Review (Thu, 6/12)
Indonesia’s bond prices was closed in the negative territory yesterday. Most of the Government bond yields climbed by around 3-11 bps, while the 10-year Government bond yield jumped 11 bps to 7.98%. The weakening bond prices also took place along with the depreciation of IDR currency to reach IDR14,520/USD yesterday, compared to the previous day’s closing level of IDR14,403/USD.
The outright trading volume of the Government securities market recorded at IDR13.3 trillion yesterday, higher than Wednesday’s transaction volume of IDR10.8 trillion. FR0070 and FR0063 were the two most actively traded series in secondary market, with the trading volume of IDR3.5 trillion and IDR2.3 trillion, respectively. Meanwhile, the outright trading volume of corporate bonds recorded at IDR788.4 billion yesterday.
Bond Market Preview (Fri, 7/12)
The potential of further price decline on Indonesia’s bond market is still relatively open amid increasing external pressure. The global market pressure increased along with higher investor concerns on the prospect of slowing global economy as well as increasing uncertainty on the trade war issue between US and China. These sentiments spurred investors to enter the safe-haven assets, reducing demand on the riskier assets. The US stock markets tumbled, in which the Dow Jones index was closed lower by 79 points, after declining by 784 points on the intraday trading last night. On the flip side, the 10-year US Government bond yield fell to 2.90%, after tumbling to reach 2.82% on the intraday. The higher external pressure is also expected to impact the domestic market, opening a room for further increase on Indonesia’s bond yields in near term. However, on the other side, the likelihood of significant increase on Indonesia’s bond yields is likely to be curbed by the potential of less aggressive stance from the US Central Bank on its interest rate hike action in 2019, hence it may also limit the possibility of the higher US Treasury yields, which may also curbs the potential of increasing Indonesia’s bond yields.
Along with the potential of market correction in near term, then several short-end and the belly series of Government bonds such as FR0069, FR0053, FR0063, FR0070, FR0077, FR0056, and FR0078 may become an attractive choice for investors in near term.
Economics and Indonesia Bond Market News
The Government is targeting to issue securities (gross) of IDR825.7 trillion in 2019. This gross issuance target is coming from the 2019 budget financing, in which the net securities issuance is targeted as much as IDR388.96 trillion, payment for maturing bonds as much as IDR382.74 trillion, and cash management amounting to IDR54.0 trillion. From the total gross issuance target, around 83% – 86% will be issued in domestic market in the form of IDR denominated paper, while the remaining 14% – 17% will be issued in the form of foreign currencies securities. From 83% – 86% of domestic issuances, around 74% – 76% securities will be issued through auction scheme, while the remaining 9% – 10% will be issued through non-auction scheme. The Government also plans to issue around 25% – 30% of total gross securities issuance in the form of Sukuk (islamic bonds), while the other 70% – 75% will be issued in form of conventional bonds. The Government will still also adopt front loading strategy, in which about 50% – 60% of total securities issuance will be issued in 1H19. We foresee that the potential demand from investors may remain solid to absorb the Government securities issuance in 2019.
Corporate bond issuances from Banking sector are predicted to reach IDR35.4 trillion in 2019. Several factors that could boost the corporate bond issuance from banking sector are potential refinancing through the issuance of new bonds, from corporate bonds that will be mature in 2019 in the amount of IDR13.8 trillion. Moreover, the potential issuances also might come from remaining shelf registration bonds of banking sector which is recorded at IDR21.6 trillion. Higher corporate bonds issuance from banking sector will be also triggered by funding needs from banks, amid higher level of loan to deposit ratio (LDR). Banking sector is one of the most active sectors in corporate bond market, as seen by the issuance volume of IDR23.2 trillion from total of IDR100.0 trillion corporate bonds issued during 11M18, and has a total of IDR125.9 trillion or equal to 30% from total corporate bonds outstanding which currently stands at IDR420.5 trillion.