Burden sharing sentiment, support weekend market. Bond market movements are in line with the policies of the Ministry of Finance (Ministry of Finance) and Bank Indonesia (BI) who started the burden sharing concept. The concept of the economy in order to accelerate the economic recovery, contained in the Joint Decree (SKB). Starting this week, BI will buy 5-year to 8-year tenors through a private placement mechanism. This tenure is shorter than the initial tenor said by Minister of Finance Sri Mulyani Indrawati before, which is for 10 years. Meanwhile, the price movement of Government Securities (SUN) is reflected in four benchmark series FR0081 5-year tenor, FR0082 10-year tenor, FR0080 15-year tenor, and FR0083 20-year tenor. Short tenure FR0081 and medium tenure FR0082 recorded yields maintained at 6.01% and 6.84%, respectively. While the IBPA INDOBeX Government Total Return index rose 0.01% to 285.22. On the other hand, the rupiah exchange rate weakened 0.21% to the level of IDR 14,610/USD.

Mayora Indah Rating Remains AA. Fitch Ratings Indonesia has confirmed Mayora Indah Tbk (MYOR) rating on AA (idn) with a stable outlook. In addition, Fitch also affirmed the AA (idn) rating of the consumer goods company unsecured bonds at IDR 550 billion. Just so you know, the national ranking in the AA category shows expectations of a very low default risk relative to issuers or other debt securities in Indonesia. This inaugural rating reflects Fitch Ratings Indonesia’s expectations of MYOR’s credit profile amid the Covid-19 pandemic. It is estimated, Mayora’s net debt to EBITDA ratio will remain below 1.5 times by 2020 despite pressure on sales growth and margins. In the midst of the Covid-19 pandemic, Fitch projects Mayora’s sales throughout 2020 will decrease by one digit. This is influenced by pressure on export sales volumes and lower domestic demand for certain products. Fitch expects Mayora’s export sales to recover gradually in 2H20 due to easing of disruptions caused by the corona virus.

Aggressive Banking Buying SBN, which during the period April-July 2020 reached IDR 248.68 trillion. This action was carried out because a number of banks had abundant liquidity, while they were still having difficulty disbursing new loans. Another cause is the relaxation of the statutory reserve requirement (GWM) by Bank Indonesia. The aggressiveness of the domestic banking sector bought up SBN which helped to reduce the yield on the country’s bonds. The 10-year SBN yield which during the financial market volatility due to the Covid-19 pandemic in March-April reached above 8%, has now been below 7%. The 10-year SBN yield is now at 6.79%, while the 5-year tenor is 5.91%. SBN yields are on an improving trend due to support from domestic investors who buy SBN, particularly domestic banks. Net purchases by domestic banks from April to July were recorded at IDR 248.68 trillion, driven by weakening credit growth and a policy to reduce the reserve requirement.

Burden Sharing Encourages SUN Auction. Domestic and foreign investors will fight over quotas, potentially pushing for SUN auction on Tuesday (07/28) tomorrow will record oversubscribed to more than IDR 40 trillion. In addition to the burden of sharing, the policy of reducing the benchmark interest rate has made foreign investors believe in investing in Indonesia. For the record, BI reduced the BI 7-DRRR benchmark rate by 25 bps to 4%. Since July 2019, BI has lowered its benchmark interest rate by 200 bps. Previously in the past 1 to 2 months, SUN issuance was often dominated by domestic investors. However, in this issue, foreign investors are projected to try to take a quota. In addition, banks are also allowed to become SUN auction participants. We project that foreign investors will be interested in 5-year short and 10-year medium tenors. Thus, SUN FR0081 with 6.5% coupon and FR0082 with 7% coupon will be targeted. Overall, the series auctioned was SPN 03201029 (New Issuance), SPN12210429 (Reopening), FR0081 (Reopening), FR0082 (Reopening), FR0080 (Reopening), FR0083 (Reopening), and FR0076 (Reopening).


-REVIEW (July 24, 2020)-
FR0081 (5yr): +3.8 Bps to 102.01 (6.01%)
FR0082 (10yr): +1.0 Bps to 101.09 (6.84%)
FR0080 (15yr): -1.5 Bps to 101.78 (7.30%)
FR0083 (20yr): +2.0 Bps to 100.86 (7.41%)

UST 2yr: -0.005 point to 0.14%
UST 5yr: +0.004 point to 0.27%
UST 10yr: +0.011 point to 0.59%
UST 30yr: -0.001 point to 1.23%
German Bund 10yr: +0.033 point to -0.44%
UK Gilt 10yr: +0.020 point to 0.14%

CDS 2yr: +3.41% to 49.06
CDS 5yr: +4.10% to 118.23
CDS 10yr: +2.64% to 186.72

WTI: +0.53% to USD41.29/Barrel
BRENT: +0.06% to USD43.34/Barrel
Source: Bloomberg