BNIS Fixed Income Daily Report of July 12, 2019.
Bond Market Review (Thu, 11/7)
Indonesia’s bond prices advanced yesterday along with increasing investors’ optimism on the higher potential of Fed rate cut. The government bond yields tumbled ranging between 2-17 bps along the curve, while the 10-year Government bond yield slumped 11 bps to 7.20%. The IDR strengthened to IDR14,067/USD yesterday, compared to the previous day’s closing level of IDR14,132 /USD.
The strengthening bond prices were also followed by increasing investors’ activity in secondary market, in which the outright trading volume of Government securities reached IDR23.7 trillion yesterday, increasing from Wednesday’s trading volume of IDR15.4 trillion, and higher than the year-to-date average daily trading volume of IDR14.3 trillion. FR0059 and FR0078 were the two most actively-traded series in secondary market, with the trading volume of IDR4.3 trillion and IDR3.3 trillion, respectively. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR1.3 trillion yesterday.
Bond Market Preview (Fri, 12/7)
The potential of further price strengthening on Indonesia’s bond market is expected to be more limited at the final trading day of this week. Global investors’ optimism was still high following testimony from The Federal Reserve Chairman, Jerome Powell, that signalled a dovish tone on the US Central Bank policy, hence, increasing investors expectation on the Fed rate cut on the next FOMC meeting, later this month. The higher investors’ optimism can be spotted from the strengthening US stocks last night, in which the Dow Jones index jumped 227.88 points (0.85%) to reach 27088.08, the highest level ever. Increasing global investors’ optimism is also expected to bring a positive catalyst to Indonesia’s bond market. However, on the flip side, the likelihood of significant decline on Indonesia’s bond yields is expected to be curbed by the possibility of less aggressive stance from investors amid narrowing yield spread between Indonesia and US Government bonds. The US Government bond yield rose last night, in which the 10-year US Treasury yield climbed 8 bps to 2.14%, as the US inflation came at 0.1% MoM in June 2019, higher than consensus expectation of 0.0% MoM. The higher US Treasury yields are also narrowing yield spread between the 10-year Indonesia and US Government bonds to reach 506 bps currently, lower than the last 10 days average of 527 bps.
Along with a more limited potential of market strnegthening, then, short term tading strategy on FR0077, FR0078, FR0068, FR0080, and FR0079 series may become a more attractive option for investors.
Economics and Indonesia Bond Market News
PT Timah Tbk will issue shelf Registration Bond I Phase II 2019 at the maximum size of IDR900.0 billion and Shelf Registration Sukuk Ijara I Phase II 2019 with the maximum size of IDR400.0 billion. The Shelf Registration Bond I Phase II will be issued in two series i.e., the 3-year A series will be sold with the coupon indicative of 8.50% – 9.50% and the 5-year B series with the coupon indicative of 8.75% – 9.75%. Meanwhile, the Shelf Registration Sukuk Ijara I Phase II will be sold in form of 5-year paper with the coupon indicative of 8.75% – 9.75%. PEFINDO rating agency has assigned the rating of idA+ for this bond and idA+(sy) for this Sukuk. The bookbuilding period will be held on July 9 – 22, 2019.
PT Mandiri Tunas Finance offers a coupon up to 9.50% for Shelf Registration Bond IV Phase II 2019 issuance totaling to IDR2.0 trillion. The bonds will be issued in two series i.e., the 3-year A series with a coupon of 8.90% will be issued as much as IDR1.342 trillion, and the 5-year B series with a coupon of 9.50% will be sold worth of IDR658.0 billion. This issuance is a part of Shelf Registration Bond IV with total issuances target of IDR3.0 trillion. The public offering period will be held on 22-23 July, 2019, while the electronic distribution and listing in IDX will be conducted on July 26 and 29, 2019.
PEFINDO rating agency has affirmed the rating of idAA for PT Fast Food Indonesia Tbk (FAST) and the company’s outstanding Bond II 2016. The outlook for the corporate rating is stable. According to PEFINDO, the corporate rating reflects FAST’s strong presence in the domestic chicken-based quick-service restaurant segment, its geographically well-diversified store locations, and very strong financial profile. However, the rating is still constrained by tight competition in the restaurant industry. PEFINDO also stated that the rating may be upgraded if the company significantly increases its revenue and improves its operating margin on a sustained basis, as well as maintaining a conservative financial policy. On the flip side, several factors that could trigger a rating downgrade include an unexpected negative revision of the franchise agreement, significantly lower revenue than its targets, and a drastically weakened capital structure. Furthermore, PEFINDO also stated, that the rating could be under pressure if the company’s EBITDA margin continues to decline, which could weaken its cash flow protection measures.