BNIS Fixed Income Daily Report of July 21, 2021.
Bond Market Review (Mon, 7/19)
Indonesia’s local currency bond prices gained early this week. Most government bond yields declined 1 – 6 bps along the curve, in which, the 10-year Government bond yield fell 5 bps to 6.30%. Meanwhile, the USD-denominated bond yields moved sideways last night, in which INDON-26, INDON-31, and INDON-51 yields were closed at 1.38% (+0 bps), 2.09% (-1 bps), and 2.99% (+0 bps), respectively. The IDR weakened slightly to IDR14,518/USD on Monday, compared to Friday’s closing level of IDR14,498/USD.
The outright trading volume of Government securities was recorded at IDR14.3 trillion on Monday, increasing from Friday’s trading volume of IDR14.2 trillion, and also higher than the month-to-date average daily trading volume of IDR11.7 trillion. FR0090 and FR0086 were the two most actively-traded series in the secondary market, with the trading volume of IDR2.8 trillion and IDR2.5 trillion, respectively. Meanwhile, the outright trading volume of corporate bonds was recorded at IDR3.8 trillion on Monday.
Bond Market Preview (Wed, 7/21)
Indonesia’s bond prices are expected to extend its gains in the near term. Global market pressure eased last night after increasing early this week due to higher concerns about the spread of Covid-19′s delta variant. According to the CDC, the US recorded an average of nearly 26,000 new cases a day in the last seven days, up from a seven-day average of around 11,000 cases a day a month ago. Meanwhile, on the economic side, the US housing starts figure was recorded at 1.64 million in June, higher than the previous month’s figure of 1.55 million. The US stock market strengthened last night (Dow Jones +1.62%; S&P 500 +1.52%; Nasdaq +1.57%) after declining on Monday. Meanwhile, the 10-year and 30-year US Treasury yields climbed to 1.22% (+3 bps) and 1.88% (+6 bps) last night. This was indicating that investors moved into the riskier assets, reducing demand on the safe-haven assets. Easing external pressure is also expected to open a room for declining Indonesia’s bond yields in the near term. The positive trend in Indonesia’s bond market may also be supported by robust investors’ liquidity. Today’s government bond auction is also expected to become investors’ focus. If today’s auction succeeds with robust demand from investors and the government manages to issue bonds in line with its indicative target, then, it may also add a positive catalyst to the market.
Given the likelihood of declining Indonesia’s bond yields, then, the belly and long-end series of government bonds such as FR0086, FR0090, FR0052, FR0087, FR0091, FR0068, FR0083, and FR0092 will be an attractive choice for investors.
Indonesia Bond Market News
Indonesia Government will conduct another bond auction today with the indicative target of IDR33.0 trillion. The Government will offer seven series of bonds i.e., SPN03211021, SPN12220331, FR0090, FR0091, FR0088, FR0092, and FR0089. Investors’ demand is expected to be strong amid robust investors’ liquidity as about IDR98.5 trillion FR0053 series matured last week. Given the robust potential demand, the government is expected to be able to issue bonds in line with its indicative target. Taking into account the market condition in recent days, we forecast the indicative yields for today’s auction are as follow :
SPN03211021 : 3.00% – 3.15%
SPN12220331 : 3.25% – 3.35%
FR0090 : 5.34% – 5.44%
FR0091 : 6.33% – 6.43%
FR0088 : 6.35% – 6.45%
FR0092 : 6.97% – 7.07%
FR0089 : 6.85% – 6.95%
PEFINDO has upgraded the ratings for PT BRI Multifinance Indonesia (BRIF) and its Medium-Term Notes I/2019 from idAA- to idAA. The outlook for the corporate rating is stable. The ratings upgrade primarily reflects PEFINDO’S view on the higher degree of support likelihood from PT Bank Rakyat Indonesia (Persero), Tbk (BBRI) as the controlling shareholder. According to PEFINDO, the ratings reflect its status as a core subsidiary of BBRI, strong capitalization, and strong financial flexibility. However, the ratings are still constrained by its below average profitability and adequate asset quality indicators. PEFINDO also stated that the rating may be upgraded if there is a stronger degree of likelihood of support from BBRI, which may be driven by a significantly greater contribution from BRIF This must be accompanied by a steady improvement on its business as well as its asset quality and profitability indicators. However, on the flip side, the rating may be downgraded if PEFINDO no longer views BRIF as a core subsidiary of BBRI. Such downside pressure may arise if BBRI revises its strategy and reduces its support and commitment, or if BRIF fails to significantly deliver on the Parent’s expectations. The rating may also be under pressure if the Company suffers a significant deterioration in financial performance, and the Parent does not provide immediate assistance.