Please find attached our BNIS Fixed Income Daily Report of January 14, 2020.
Bond Market Review (Mon, 13/1)
Indonesia’s bond prices continued its gains yesterday. Most of the government bond yields declined by 1 – 6 bps along the curve, in which, the 10-year Government bond yield tumbled 6 bps to 6.84%. The IDR strengthened to IDR13,673/USD yesterday, compared to last week’s closing level of IDR13,772/USD.
The outright trading volume of Government securities was recorded at IDR22.4 trillion yesterday, increasing from Friday’s trading volume of IDR19.7 trillion, and also higher than the year-to-date average daily trading volume of IDR18.3 trillion. FR0082 and FR0077 were the two most actively-traded series in secondary market, with the trading volume of IDR5.2 trillion and IDR3.2 trillion, respectively. Meanwhile, the outright trading volume of corporate bond was recorded at IDR1.3 trillion yesterday.
Bond Market Preview (Tue, 14/1)
Indonesia’s bond yields are expected to extend its downside trend amid increasing global investors’ optimism as well as robust market liquidity early this year. The global investors’ optimism on the US – China trade relations increased as the two countries will sign the phase I trade deal this midweek. The global investors were also more sanguine on the US – China relations following news that the US will remove China from a list of currency manipulating countries. Moreover, global investors confidence also raised ahead of 4Q19 earning seasons which will be kicked off this week, in which the 4Q19 earnings results are expected to remain solid. Those sentiments pushed the US stock markets up (Dow Jones +0.29%; S&P 500 +0.70%; Nasdaq +1.04%) last night, which was also followed by increasing the 10-year and 30-year US Treasury yields to 1.85% (+3 bps) and 2.30% (+2 bps), respectively. Increasing global optimism may also add the positive catalyst which will open a room for further market strengthening on Indonesian bonds. The potential of further yield declines may be also supported by robust market liquidity early this year which was reflected from the higher daily trading volume of Government securities. Foreign appetite to Indonesia’s bond market remained strong, where during the first six trading days in 2020, foreigners have posted a net buy of IDR9.3 trillion in Government securities.
Given the potential of further market strengthening, then, the belly and long-end series of Government bonds such as FR0081, FR0082, FR0080, and FR0083 may remain attractive to become investors choice. Meanwhile, for investors with longer investment horizon, today’s sukuk auction can be seen as an opportunity to enter the sharia instruments which offers a more attractive return.
Indonesia Bond Market News
Indonesia Government will conduct Sukuk auction today, with the indicative target of IDR7.0 trillion. On the first sukuk auction in 2020, Government will offer four series of Sukuk i.e., SPNS15072020, PBS002, PBS026, and PBS005. Investors’ appetite on today’s auction is expected to be strong along with robust investors’ liquidity early this year and there are ample room for further yield declines this year. Investors’ demand is expected to be higher on the short-term series of sukuk such as SPNS15072020 and PBS002. Along with the potential of robust investor demand, the Government is likely to be able to issue sukuk in line with its indicative target on this auction. Taking into account the market condition in recent days, we forecast the indicative yields on today’s auction are as follow :
SPNS15072020 : 4.50% – 4.70%
PBS002 : 6.00% – 6.15%
PBS026 : 6.55% – 6.70%
PBS005 : 7.85% – 8.00%
PEFINDO rating agency has affirmed the rating of idAAA for PT pegadaian (Persero) and the company’s outstanding bonds. PEFINDO has also affirmed its idAAA(sy) rating for Pegadaian’s Sharia Medium Term Notes (MTN) Mudharabah I 2018. The outlook for the corporate rating is stable. According to PEFINDO, the corporate rating reflects Pegadaian’s status as an important government-related entity, its superior position in the pawn service business, very strong capitalization, and a favourable liquidity and financial flexibility. However, the rating is constrained by its increasing pressure on asset quality. Pegadaian provides pawning and micro-lending services through a 12 regional offices and 4148 units throughout Indonesia. The company is fully owned by the Indonesian Government.