BNIS Fixed Income Daily Report of May 18, 2020.
Bond Market Review (Fri, 15/5)
Indonesia’s bond prices extended its gains on the final trading day last week. Most of the government bond yields declined by about 4 – 8 bps along the curve, in which the 10-year Government bond yield tumbled 8 bps to 7.76%. The IDR strengthened slightly to IDR14,860/USD on Friday, compared to the previous day’s closing level of IDR14,885/USD.
Despite the strengthening bond prices, investors’ activity in the secondary market was relatively limited. The outright trading volume of Government securities reached IDR13.1 trillion on Friday, increasing from the previous day’s trading volume of IDR11.7 trillion, yet, remained lower than the year-to-date average daily trading volume of IDR19.1 trillion. FR0082 and FR0081 were the two most actively-traded series in the secondary market, with the trading volume of IDR2.9 trillion and IDR2.2 trillion, respectively. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR923.1 billion on Friday.
Bond Market Preview (Mon, 18/5)
Indonesia’s bond yields are expected to move in a narrow range early this week along with mixed external catalysts. The global market pressure increased after the US retail sales declined 16.4% MoM in April 2020, weaker than Bloomberg consensus estimates which expected a decline of 12.0% MoM. The declining April’s retail sales was also deeper than previous month’s decline of 8.3%. The global market pressure also increased along with higher trade tension between US and China after the US government moved to block semiconductor shipments to Huawei Technologies. However, on the flip side, the global market pressure was limited by increasing the University of Michigan’s consumer sentiment index to 73.7 in May 2020, from the previous month’s level of 71.8, and also higher than Bloomberg consensus expectation of 68.0, following massive stimulus measures undertaken by the government to sustain the economy. Along with the mixed global sentiments, the US stock market strengthened slightly on the final trading day last week (Dow Jones +0.25%; S&P 500 +0.39%; Nasdaq +0.79%), while the 10-year and 30-year US Treasury yields were closed at 0.64% (+2 bps) and 1.33% (+4 bps), respectively. The mixed external sentiments are expected to limit the yield movement on Indonesia’s bond market in the near term. Additionally, the holiday-shortened week due to Ascension Day and Eid Al-Fitr may also trigger investors to be less aggressive, curbing the yield movement in Indonesia’s bond market.
Given the potential of sideways market movement, then, the short-end and the belly series of Government bonds such as FR0053, FR0061, FR0063, FR0070, FR0064, and FR0071 may remain attractive for investors.
Indonesia Bond Market News
Indonesia Government will conduct a Sukuk auction today, with the indicative target of IDR7.0 trillion. On today’s auction, the Government will offer six series of Sukuk i.e., SPNS19112020, PBS002, PBS026, PBS023, PBS004, and PBS005. Investors’ appetite is expected to be moderate due to lingering global market volatility. Yet, the Government is still expected to be able to issue sukuk in line with its indicative target on today’s auction. Taking into account the market condition in recent days, we forecast the indicative yields on today’s auction are as follow :
SPNS19112020 : 3.50% – 3.70%
PBS002 : 6.10% – 6.30%
PBS026 : 7.40% – 7.60%
PBS023 : 7.80% – 8.00%
PBS004 : 8.25% – 8.45%
PBS005 : 8.40% – 8.60%
PEFINDO rating agency has affirmed the rating of idAA for BRI Agroniaga Bonds I 2017 series A. The IDR261.0 billion bond will mature on July 7, 2020. This maturing bond will be repaid by the bank’s internal funds. As of February 29, 2020, the bank recorded more than sufficient amounts of cash and placement of IDR2.1 trillion. PT Bank Rakyat Indonesia Agroniaga Tbk (AGRO) focuses on Agribusiness related sectors, and as of December 31, 2019, the bank’s shares were held by BRI (87.10%), Dana Pensiun Perkebunan (6.32%), its Board of Directors (0.01%), and the public (6.57%).
PT Equity Finance Indonesia has successfully issued MTN Equity Finance Indonesia VII Phase VI 2020 amounting to IDR35.5 billion. The MTN has been issued in the form of a 3-year paper and offers a coupon of 13.0% per annum. Following this issuance, year-to-date, MTN issuance has reached IDR4.6 trillion, lower than the same period last year of IDR6.8 trillion. We believe that the declining MTN issuance was triggered by higher pressure on the bond market since early this year due to the negative impact of coronavirus outbreak globally.