BNIS Fixed Income Daily Report of April 2, 2020.
Bond Market Review (Wed, 1/4)
Indonesia’s bond prices declined yesterday along with increasing external pressure. The Government bond yields climbed 4 – 13 bps along the curve, in which the 10-year Government bond yield surged 5 bps to 7.91%. The IDR weakened to IDR16,450/USD yesterday, compared to Tuesday’s closing level of IDR16,310 /USD.
The downside movement on Indonesia’s bond market was also followed by lower investors’ activity in secondary market, which can be spotted from the outright trading volume of Government securities which only reached IDR11.6 trillion yesterday, decreasing from the previous day’s trading volume of IDR19.6 trillion, as well as lower than year-to-date average daily trading volume of IDR22.1 trillion. FR0080 and FR0082 were the two most actively-traded series in secondary market yesterday, with the trading volume of IDR2.3 trillion and IDR1.8 trillion. Meanwhile, the outright trading volume of corporate bond was recorded at IDR611.3 billion yesterday.
Bond Market Preview (Thu, 2/4)
Indonesia’s bond prices are expected to extend its downside movement in near term amid lingering external pressure. The global investors’ fears increased as the New York Governor said a model showed the Covid-19 outbreak may not peak in the state until the end of April. In addition, Italy also said it would extend its lockdown. The coronavirus cases in the US have reached at least 209.000 currently, while globally, more than 932.000 cases have been confirmed. The global market pressure also increased along with declining US ISM manufacturing index to 49.1 in March 2020, from the previous month’s level of 50.1. The higher external pressure triggered investors to enter safe-haven assets, reducing demand on the riskier assets, which can be spotted from declining the 10-year and 30-year US Treasury yields to 0.58% (-9 bps) and 1.22% (-10 bps), respectively, which was also followed by weakening US stock market last night (Dow Jones -4.44%; S&P 500 -4.41%; Nasdaq -4.41%). Lingering external pressure may also open a room for further market correction on Indonesian bonds in near term. However, the possibility of significant increase on Indonesia’s bond yields may be curbed by the Government’s step to ease the negative impact of the coronavirus outbreak as well as Bank Indonesia’s action to maintain market stability.
Given the higher global market pressure, then, the short-end and belly series of Government bonds such as FR0053, FR0070, FR0077, FR0056, FR0064, and FR0071 may become a more attractive choice for investors.
Indonesia Bond Market News
Indonesia’s inflation came at 0.10% MoM and 2.96% YoY in March 2020. The core inflation was recorded at 2.87% YoY last month, slightly higher than previous month’s figure of 2.76% YoY. March’s inflation was triggered by increasing price on the most of expenditure groups, which was led by Personal Treatment and Other Services (0.99%), Restaurant (0.36%) as well as Households equipment and maintenance category (0.36%). On the flip side, the Transportation as well as Information, Communication, and Financial Services declined by -0.43% and -0.09%, respectively, last month. The Personal Treatment and Other Services category was the highest contributor of last month’s inflation with the contribution of 0.06% of March’s inflation, while the Transportation category brought a deflation contribution of -0.05% to last month’s CPI. Following last month’s figure, inflation during the first three month in 2020 was recorded at 0.76%.
Indonesia Government plans to conduct Sukuk auction on Tuesday, April 7, 2020, with the indicative target of IDR7.0 trillion. On the next week’s auction, Government will offer six series of Sukuk i.e., SPNS08102020, SPNS08012021, PBS002, PBS026, PBS004, and PBS005. Investors’ appetite is expected to remain moderate amid higher global market volatility. In line with the previous auctions, investors’ appetite on next week’s auction is still expected to be stronger on the short-end series such as SPNS08102020, SPNS08012021, and PBS002. The Government is still expected to be able to issue sukuk in line with its indicative target on next week’s auction. In 1Q20, Government has successfully issued IDR44.6 of Sukuk through six times sukuk auctions.