Please find attached our BNIS Fixed Income Daily Report of June 14, 2019.
Bond Market Review (Thu, 13/6)
Indonesia’s bond prices experienced another upside movement yesterday. The government yields closed lower in the range between 2-10 bps along the curve, in which the 10-year government bond yield inched lower 2 bps to 7.67%. The IDR weakened to IDR14,280/USD yesterday, compared to previous day’s closing level of IDR14,241 /USD.
The outright trading volume of Government securities reached IDR16.7 trillion yesterday, increasing from the Wednesday’s trading volume of IDR9.8 trillion, and also higher compared to the year-to-date average daily trading volume of IDR14.4 trillion. FR0077 and FR0078 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 was recorded at IDR882.9 billion yesterday.
Bond Market Preview (Fri, 14/6)
Indonesia’s bond yields are expected to move in a narrow range amid mixed sentiments from external and domestic. Global investors’ optimism persists, as the expectation of Fed Rate cut continues to increase. Based on the Bloomberg data, the probability of Fed Rate cut in July, September, and October 2019 reaches 86.6%, 97.5%, and 98.4% currently. This also dragged the 10-year US Treasury down to 2.10% last night, the lowest level since September 2017. The lower US Treasury yields also widens the yield spread between the 10-year Indonesia Government bond and US Treasury to reach 557 bps currently, higher than year-to-date average of only 530 bps, thus, it will add the attractiveness of Indonesia’s bond market and opening the possibility of foreign fund inflows, as well as the potency for another price uptrend movement in domestic bond market. However, the possibility of significant increase on Indonesia’s bond prices may be curbed by the widely open potency for profit taking in domestic bond market, after a long significant uptrend in the previous trading days. Investors will also focus on the next week’s Government bond auction, and tend to have a less aggressive stance in the secondary market.
Along with the potential of narrow yield movements, then several Government bonds such as FR0077, FR0078, FR0074, FR0065, FR0068, and FR0079 may become an attractive choice for investors.
Economics and Indonesia Bond Market News
Indonesia’s foreign reserve was recorded at USD120.35 billion at the end of May 2019, lower than the march 2019’s level of IDR124.30 billion. This foreign reserve was equivalent for financing 6.9 months of imports or about 6.7 months imports and repayment of Government external debt. The decline in the reserve assets in May 2019 was mainly influenced by the obligation of government external debt repayments and banks’ foreign currency placement reduction in Bank Indonesia as to anticipate foreign currency liquidity needs regarding the cycle of dividend payments for several foreign companies and ahead of the Eid al-Fitr long holiday. Bank Indonesia sees that this foreign reserve position is able to support the external sector resilience and maintain macroeconomic and financial system sustainability. Going forward, Bank Indonesia also sees that the foreign reserve will remain adequate which will be supported by stability and solid economic prospects.
PT Waskita Beton Precast Tbk. (WSBP) offers a copon of 9.75%-10.50% on the issuance of Shelf Registration Bonds I Waskita Beton Precast Phase I 2019, totaling to IDR500.0 billion. The bond will be sold with a tenor of 3 years. This issuance is a part of Shelf Registration Bonds I with issuance target of IDR2.0 trillion. Fitch Ratings Indonesia was also affirmed its BBB+ rating for the bond. The Company will use 40% of the total funds proceeds from the issuance for the Company’s working capital in civil construction and building, including the purchase of construction materials, subcontractor fees and labor costs. The remaining 60% will be used for the company’s investment, especially in plant construction to increase the company’s production capacity.