Capital inflow of IDR 2.7 trillion pushed the SUN market over the weekend. Foreign investors recorded a net purchase of IDR 2.7 trillion, during the period 19-25 June 2020. Meanwhile, the strengthening of the SUN market was reflected in the rise in the SUN benchmark prices FR0081, FR0080, and FR0083. The strongest reference series was FR0081, recording a decline in yield of more than 2 bps to a level of 6.62%. The strengthening of the benchmark SUN was also reflected in the increase in INDOBeX Government Total Return, which rose 0.03% to 278.66. On the other hand, Bank Indonesia (BI) data recorded an outflow of foreign investors reaching IDR 100 trillion during the year. Foreign investors recorded a capital outflow in the domestic financial market worth IDR 141.72 trillion. The rupiah exchange rate weakened 0.35% from the previous day, to the level of IDR 14,150 / USD on the spot market. SUN market movements over the weekend, also amid revised global economic growth from the International Monetary Fund (IMF). The IMF projects that world economic growth will contract 4.9% in 2020. This figure is lower than the previous projection in April, which contracted 3%.

Fitch Rating revised WIKA’s outlook, from stable to negative. Fitch affirmed the long-term debt rating and local currency issuer default rating Wijaya Karya Tbk (WIKA IJ) on the BB rating. Fitch also revised WIKA’s national debt rating outlook to negative from previously stable. Fitch also confirmed the national rating on AA- (idn). Fitch projects the corona pandemic to have a significant impact on WIKA’s performance in 2020. On the other hand, WIKA’s financial profile has the potential to improve in 2021, driven by the recovery of economic activity. The recovery of WIKA’s financial performance will also be very dependent on the government’s efforts to control the pandemic at home. (Kontan)

BI: Deflation in June 2020 at 0.01%. BI projects that prices for June 2020 will experience deflation of 0.01% MoM; with a calendar year inflation rate of 0.90% YtD, and an annual basis of 1.76% YoY. Meanwhile, the main contributor to deflation came from the decline in commodity prices of 0.04% MoM garlic, then followed by red chillies, oranges, and air freight rates. In addition, BI also noted a number of commodities which recorded price increases such as pedigree meat which rose 0.13% MoM; and purebred eggs rose 0.05% MoM. In this regard, BI strengthened coordination with the government and authorities to monitor Indonesia’s domestic economy. (Kontan)

Inflation Sentiment Support SUN Market. We project inflation will still decline to around 2%, because household consumption has not yet grown significantly. This condition can encourage capital inflow into the Indonesian domestic financial market. Foreign investors will be interested in SUN if inflation is low. Because, Indonesia’s real interest rate has the potential to rise from 4% to 5%. This positive sentiment will also support the latest SUN auction in the 2Q20 period. On Tuesday (30/06) the day after tomorrow, the government offered FR0081, FR0082, FR0080, FR0083 and FR0076. In addition to the five series, the government also offers SPN03202001 (New Issuance) 3-month tenor; and SPN12210701 (New Issuance) 12-month tenor at the SUN auction. The government can take advantage of opportunities to find funding, while investors will be more selective in buying corporate bonds. Some investors worry about the company’s cash flow being disrupted, and affect the ability to pay interest and loan principal.

-REVIEW (June 26, 2020)-
FR0081 (5yr): -2.7 Bps to 99.92 (6.51%)
FR0082 (10yr): +0.1 Bps to 98.84 (7.16%)
FR0080 (15yr): +1.0 Bps to 99.36 (7.57%)
FR0083 (20yr): +0.6 Bps to 98.79 (7.61%)

UST 2yr: +0.021 point to 0.16%
UST 5yr: -0.030 point to 0.30%
UST 10yr: -0.044 point to 0.64%
UST 30yr: -0.065 point to 1.37%
German Bund 10yr: +0.012 point to -0.48%
UK Gilt 10yr: +0.018 point to 0.17%

CDS 2yr: +1.75% to 58.82
CDS 5yr: +4.56% to 132.20
CDS 10yr: +1.38% to 212.29

WTI: +1.86% to USD38.72/Barrel
BRENT: +1.83% to USD41.05/Barrel