BNIS Fixed Income Daily Report of August 14, 2019.
Bond Market Review (Tue, 13/8)
Indonesia’s bond prices continued its downside movement yesterday as the global pressure persisted. Most of Government bond yields jumped by about 2 – 15 bps, in which, the 10-year Government bond yield surged 15 bps to 7.51%. The IDR weakened to IDR14,325/USD yesterday, compared to previous day’s closing level of IDR14,250/USD.
The outright trading volume of Government securities reached IDR14.7 trillion yesterday, much higher than previous day’s trading volume of only IDR5.3 trillion. FR0082 was the most actively-traded series in secondary market, with the trading volume of IDR7.2 trillion. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR1.1 trillion yesterday.
Bond Market Preview (Wed, 14/8)
Indonesia’s bond market is expected to rebound today after weakening on the last two days. Global market pressure eased as the US decided to delay the 10% import tariffs on some Chinese products to mid-December 2019. The United State Trade Representative said the delay affects electronics including cell phones, laptops and video game consoles and some clothing products and shoes as well as certain toys. Even, the US Government plan to remove some items from the tariff list. Those US Government’s actions eased global investors’ fears on the worsening US – China trade war, and it was responded positively by market participants, increasing investors’ risk-appetite and reducing demand on safe-haven assets. This can be spotted from the strengthening US stock indexes last night (Dow Jones +1.44%; S&P 500 +1.48%; Nasdaq +1.95%), which was also followed by increasing the 2-year and 10-year US Treasury yields to reach 1.67% (+8 bps) and 1.71% (+6 bps). These sentiments are also expected to become a positive catalyst which will open a room for Indonesia’s bond market strengthening. The likelihood of foreign fund inflows is also relatively open amid widening yield spread between the 10-year Indonesia and US Government bonds to reach 580 bps currently, higher than year-to-date average yield spread of 532 bps. The higher possibility of foreign fund inflows is also add the positive catalyst for Indonesia’s bond market.
As the bond yields are more attractive after increasing during the last two days, and a room for declining yields is relatively open in near term, then, it can be seen as a buying opportunity for investors. The belly and long-end series of Government bonds such as FR0077, FR0081, FR0078, FR0082, FR0068, FR0080, and FR0079 may become a more attractive choice for investors.
Economics and Indonesia Bond Market News
Indonesia Government has successfully issued IDR15.0 trillion of bonds through yesterday’s bond auction. Total investors’ bid on this auction only reached IDR26.51 trillion, much lower than average bids on the 15 previous bond auction in 2019 of IDR52.25 trillion, indicating that investors were less aggressive to enter the bond market amid higher global market pressures. Despite lower investors participation, the Government was able to issue bonds in line with its indicative target of IDR15.0 trillion. Following yesterday’s bond auction, year-to-date, Government has successfully issued IDR643.85 trillion of securities or about 77.98% of 2019 securities issuance target.
PEFINDO rating agency has assigned the rating of idA+ for PT Wijaya Karya Beton Tbk (WTON) with the stable outlook. According to PEFINDO, the rating reflects the company’s leading market position which benefits from the Government’s accelerated infrastructure development program, the company’s extensive network with more diversified services and products, its conservative capital structure, and strong cash flow protection measures. However, the rating is still constrained by the company’s high exposure to the volatility of the construction business and the threat of new entrants. PEFINDO also said that the rating could be upgraded if WTON strengthens its market position and significantly imporves its financial profile on a sustained basis. WTON is the largest precast concrete manufacturer in Indonesia, in which as of March 31, 2019, the company’s shares were owned by PT Wijaya Karya (Persero) Tbk (60.0%), Koperasi Karya Mitra Satya (6.4%), Yayasan Wijaya Karya (1.0%), WTON’s Treasury stock (4.3%), and public (28.3%).