Please find attached our BNIS Fixed Income Daily Report of March 12, 2019.
Bond Market Review (Mon, 11/3)
After declining on the last few days, Indonesia’s bond prices strengthened yesterday along with the buying actions by investors. Most of the government bond yields fell 1-5 bps, while the 10-year Government bond yield declined 3 bps to 7.91%. The IDR currency strengthened to IDR14,291/USD yesterday, compared to the last week’s closing of IDR14,314/USD.
The outright trading volume of Government securities was recorded at IDR14.1 trillion yesterday, slightly lower than Friday’s trading volume of IDR14.7 trillion. FR0068 and FR0078 were the two most actively traded series in secondary market, with the trading volume of IDR2.3 trillion and IDR2.0 trillion, respectively. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR969.3 billion yesterday.
Bond Market Preview (Tue, 12/3)
Indonesia’s bond prices are expected to extend its upside movement in near term amid easing external pressure. Global investors’ optimism increased along with better-than-expected result on US retail sales in January 2019, easing concern on global economic slowdown. The higher optimism also spurred investors to enter the riskier assets, reducing demand on the safe-haven assets, which can be seen from the strengthening US and European stock markets (Dow Jones +0.79%; FTSE100 +0.37%; DAX +0.75%), followed by increasing the 10-year US Treasury yield to 2.64% last night. Those sentiments are also expected to become a positive catalyst for Indonesia’s bond market in near term. The potential of market strengthening may also be supported by the likelihood of strengthening IDR along with the positive movement of Asian currencies this morning due to the weakening USD. The market participants are also expected to focus on today’s Government bond auction. If today’s auction is success with robust demand from investors and Government is able to issue bonds in line with the indicative target, then, it may also add the positive catalyst for Indonesia’s bond market.
Along with the potential of market strengthening, then, the belly and long-end series of Government bonds such as FR0077, FR0056, FR0078, FR0058, FR0074, FR0065, FR0068, and FR0079 may become an attractive choice for investors. Today’s Government bond auction also can be utilized by market participants to enter the Indonesia’s bond market which offers a more attractive return following last week’s increasing yields.
Economics and Indonesia Bond Market News
Another bond auction will be held by Indonesian Government today, with the indicative target of IDR15.0 trillion. On today’s bond auction, the Government will offer seven series of bonds i.e, SPN03190613, SPN12200313, FR0077, FR0078, FR0068, FR0079, and FR0076. Investors’ demand are expected to remain robust on this auction along with a more attractive yield offered in domestic market as well as various series offered by the Government. Along with the possibility of solid investors’ demand, we believe that the Government will be able to issue bonds in line with the indicative target. Even, the possibility of higher issuance than its target is relatively open if investors’ bid yields are relatively low, as can be seen on the first five bond auctions in 2019, where the Government was always succeeded to issue bonds higher than its indicative target, with the average issuance of IDR25.2 trillion per auction. Taking into account the market condition on the last few days, we forecast the indicative yields for today’s auction are as follow :
SPN03190613 : 5.70% – 5.90%
SPN12200313 : 6.00% – 6.20%
FR0077 : 7.45% – 7.55%
FR0078 : 7.85% – 7.95%
FR0068 : 8.25% – 8.35%
FR0079 : 8.30% – 8.40%
FR0076 : 8.55% – 8.65%
PEFINDO rating agency has affirmed the rating of idAAA PT Bank Rakyat Indonesia (Persero) Tbk (BBRI), the Bank’s outstanding shelf registration bond I 2015 and shelf registration bond II 2016. Outlook for the corporate rating is stable. PEFINDO has also affirmed its idAA rating to BBRI’s outstanding subordinated bond III 2018. Furthermore, PEFINDO has also affirmed its idAAA rating for Shelf Registration Bond I BBRI 2016 Phase III series B amounting to IDR2.437 trillion which will mature on May 25, 2019. The Bank’s readiness to repay its maturing bond is supported by its liquid assets in the form of cash and placements to Bank Indonesia which amounted to IDR81.0 trillion at the end of December 2018. According to PEFINDO, the ratings reflect the Bank’s very strong and proven support from the Indonesian Government, its superior business position, very strong profitability, and very strong capitalization. However, these strengths are partly offset by potential pressure on its asset quality profile due to challenging economic conditions.