Please find attached our BNIS Fixed Income Daily Report of March 14, 2019
Bond Market Review (Wed, 13/3)
Indonesia’s bond prices extended its gains for a third-straight day along with higher global optimism. The government bond yields fell 1-9 bps along the curve, while the 10-year Government bond yield declined 2 bps to 7.83%. The IDR currency strengthened slightly to IDR14,265/USD yesterday, compared to previous day’s closing level of IDR14,267 /USD.
Investors’ activity in the secondary market remained robust, that can be spotted from the outright trading volume of Government securities which was recorded at IDR15.5 trillion yesterday, higher than year-to-date average daily trading volume of IDR14.8 trillion. FR0077 dan FR0078 were the two most actively traded series in secondary market, with the trading volume of IDR3.8 trillion and IDR1.8 trillion, respectively. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR1.1 trillion yesterday.
Bond Market Preview (Thu, 14/3)
Indonesia’s bond prices are expected to continue its gains in near term along with increasing global optimism. The global investors’ worries on the slowing US economy eased as several data which was released last night signaling a resilient economy, while inflation remains in check. The US durable goods orders in January increased higher than consensus expectation, in addition, construction spending in January 2019 was also recorded higher than previous month. On the flip side, US Producer Price Index was recorded at 1.9% YoY in February 2019, in line with the consensus expectation. The robust US economic data were responded positively by market participants, spurring investors to enter the riskier assets, reducing demand on safe-haven assets, which can be spotted from the strengthening US and European stock markets last night (Dow Jones +0.58%; FTSE100 +0.11%; DAX +0.42%), followed by increasing the 10-year US, Germany, and UK Government bond yields to reach 2.62% (+2 bps); 0.06% (+1 bps); and 1.20% (+4 bps), respectively. Increasing investors’ appetite on the riskier assets may also open the likelihood of foreign fund flows to emerging market including Indonesia, thus, it may also open the potential of further decline on Indonesia’s bond yields.
Along with the potential of further market strengthening in near term, then, the belly and long-end series of Government bonds such as FR0077, FR0056, FR0059, FR0078, FR0054, FR0058, FR0068, and FR0079 may become an attractive choice for investors.
Economics and Indonesia Bond Market News
Indonesian Government will conduct sukuk auction on Tuesday, March 19, 2019, with the indicative target of IDR8.0 trillion. On the next week’s sukuk auction, the Government will offer six series of sukuk i.e, SPNS06092019, PBS014, PBS019, PBS021, PBS022 and PBS015. Investors’ demand are expected to remain robust on next week’s auction amid a more attractive yield offered in domestic market as well as various series which will be offered by Government. On the first five sukuk auctions this year, on average, total investors’ bid reached IDR21.7 trillion, higher than average investors’ bid on 2018’s sukuk auction of only IDR12.7 trillion. Along with the possibility of robust investors’ demand, we believe that the Government will be able to issue Sukuk 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 five previous sukuk auctions, where the Government has successfully issued Sukuk by average of IDR8.7 trillion per auction, higher than its indicative target of IDR8.0 trillion per auction.
PEFINDO rating agency has affirmed the rating of idAA for Mayora Indah Bond IV 2012. The bonds with nominal outstanding of IDR750.0 billion, will mature on May 9, 2019. The Company plans to repay its maturing bond using internal cash and unused bank loan facilities, in which, as of December 31, 2018, the company had cash and cash equivalent of IDR2.4 trillion and unused credit facilities of around IDR3.3 trillion. According to PEFINDO, the rating reflects the company’s strong position in the domestic packaged food market, well diversified products and high contribution from overseas markets, and strong financial profile. However, the rating is still constrained by its exposure to the fluctuation of raw material costs and tight competition in the industry.