BNIS Fixed Income Daily Report of August 15, 2019.
Bond Market Review (Wed, 14/8)
Indonesia’s bond prices rebounded yesterday after declining on the two previous days. The easing investors’ fears on the possibility of worsening US – China trade war spurred the market participants to head back into the domestic bond market. Most of Government bond yields tumbled by about 2 – 8 bps, in which, the 10-year Government bond yield slumped 8 bps to 7.43%. The IDR strengthened to IDR14,245/USD yesterday, compared to previous day’s closing level of IDR14,325/USD.
The outright trading volume of Government securities was only recorded at IDR8.8 trillion yesterday, lower than previous day’s trading volume of IDR14.7 trillion. FR0078 was the most actively-traded series in secondary market, with the trading volume of IDR1.1 trillion. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR1.2 trillion yesterday.
Bond Market Preview (Thu, 15/8)
Indonesia’s bond market is expected to decline today along with increasing external pressures. The global market participants’ fears increased amid stronger signal on the potential of US recession, which can be spotted from the inverted yield curve (the 2-year yield is higher than the 10-year yield) in US bond market. The 2-year yield had reached 1.58% last night, while on the same time, the 10-year US Treasury yield was recorded at 1.57%. Historically speaking, the US economy tend to enter into recession within 12 – 24 months after the yield of 2-year and 10-year bonds inverts. The stronger signal of recession was responded negatively by global market participants, spurring investors to enter the safe-haven assets, reducing investors’ risk-appetite. This can be spotted from declining the 30-year US Government bonds to 2.02% last night, its lowest level ever, which was also followed by significant decline on US and European stock markets (Dow Jones -3,05%; FTSE 100 -1,42%; DAX -2,19%). Increasing external pressure is also expected to open a room for market correction on Indonesian bonds in near term. Still, despite the market correction, the likelihood of significant increase on Indonesia’s bond yields are still expected to be limited by Bank Indonesia’s action to stabilize the bond market as well as IDR currency.
Along with the potential of market correction in near term, then, shortening-duration strategy may become a more attractive option for investors. The market participants may switch their longer-dated paper with the shorter ones such as FR0031, FR0053, FR0061, FR0063, FR0070, FR0056, and FR0059.
Economics and Indonesia Bond Market News
PT Sarana Multigriya Finansial (Persero) will issue Shelf Registration Bond V Phase II up to IDR2.5 trillion. The bonds will be issued in two series, i.e., the 3-year A series offers a coupon of 7.8%, will be issued as much as IDR771.5 billion, and the 5-year B series with a coupon of 8.1% will be sold worth of IDR517.0 billion. The remaining IDR1.24 trillion will be issued in best effort scheme. The offering period will be conducted on 22 – 23 August 2019, electronic distribution on August 28, 2019, and the bonds will be listed in IDX on August 29, 2019. This issuance is a part of Shelf Registration bonds V 2019 with total issuance target of IDR19.0 trillion.
Bank MUFG issued NCD IV MUFG Phase IV totaling to IDR2.1 trillion. This NCD was issued in form of 3-month, 6-month, and 12-month papers. Following this NCD issuance, year-to-date, total NCD which has been issued by banks reached IDR10.9 trillion, much higher than the same period in 2018 which was only amounted to IDR4.88 trillion. Going forward, there are several NCD which will mature for the rest of this year, while the potential for Bank Indonesia’s benchmark rate cut is still relatively open, thus, it may increase issuers appetite to issue NCD.
PEFINDO rating agency has affirmed the rating of idAAA for Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (TLKM), the company’s bond II 2010 series B, Shelf Registration Bond I TLKM 2015, and MTN I TLKM 2018. PEFINDO has also affirmed the rating of idAAA(sy) for the company’s MTN Sharia Ijarah I 2018. The outlook for the corporate rating is stable. According to PEFINDO, the corporate rating reflects TLKM’s superior position with its diversified businesses and extensive networks, strong profitability margin, and very strong cash flow protection measures which is supported by a very conservative capital structure. However, the rating is still constrained by the intense competition in the telecommunications industry. Furthermore, PEFINDO also stated that despite intense competition, TLKM’s business position should remain superior in the near to medium term, given its well-established infrastructure and networks, which are the most important competitive advantages in the telecommunications business. As of June 2019, the company’s was owned by Indonesian Government (52.1%) as well as public and others (47.9%).