CDS Declines, FR0086 Returns to Par. CDS decline is in line with the improvement in the 2Q20 current account deficit worth USD 2.9 billion or equivalent to 1.2% of GDP. This figure improved from the previous quarter’s current account deficit of USD 3.7 billion or 1.4% of GDP. Meanwhile, positive sentiment for the appreciation of the rupiah was also supported by the domestic trade balance which was a surplus of USD 3.26 billion in July. The new FR0086 (6-year) series posted closing prices at the level of 100.01 or a decrease in yield of 1.8 bps to the level of 5.49%. Market movements at the beginning of the week, amid awaiting the release of August inflation data. The projected inflation is still low, indicating weak domestic demand. This has put pressure on the 3Q20 economic growth outlook again, as the risk of contraction is getting higher. Previously in 2Q20, Indonesia’s economy contracted by 5.32% YoY. So that if the 3Q20 quarter contracted again, Indonesia would officially enter a recession zone.

Indah Kiat Issues IDR 1.8 Trillion Bonds. Indah Kiat Pulp & Paper Tbk (INKP) held a sustainable public offering (PUB) Phase II bonds worth IDR 1.8 trillion. The proceeds from the bond issuance will be used for debt repayment needs and the company’s working capital. The company offers bonds in three series, namely series A worth IDR 925.60 billion with a fixed interest rate of 9.25% per year with a tenor of 370 days. Meanwhile, series B valued at IDR 597.85 billion with a fixed interest rate of 10.50% per year with a 3-year tenor. Meanwhile, series C is valued at IDR 276.55 billion with a fixed interest rate of 11.50% per year with a 5-year tenor. Pefindo has assigned A + bond rating. Meanwhile, about 60% of the proceeds will be used for repayment of the company’s debt in the form of loan principal and interest. The rest will be used for working capital such as purchasing raw materials, production supporting materials, energy and fuel, packaging goods and overhead costs. PUB I phase II is part of the PUB II program which has a target of issuance of up to IDR 10 trillion. In May, the company won IDR 1.39 trillion from PUB I phase I. (Investor Daily)

Deflation in August. Inflationary pressure in August 2020 is projected to remain low. However, deflation was not as low as July, which was recorded at 0.10%. Based on market consensus, including Bank Indonesia’s projections, the median (average) value of inflation for August is projected at 0.0175%, a survey of economist projects inflation in August at 0.01%, while the central bank predicts 0.04%. According to the Executive Director, Head of the Communication Department of Bank Indonesia, the projection is based on a price monitoring survey in the fourth week of August 2020. The inflation estimate for August 2020 is 0.94% ytd, and 1.34% yoy annually. Meanwhile, the main contributor to deflation came from the decline in the prices of several food commodities, such as broiler chicken, which fell 0.15% MoM, shallots were corrected by 0.08% MoM, and oranges, tomatoes and eggs, each fell 0.02. % MoM. However, there are still some commodities whose prices have gone up, thus holding back the rate of deflation from deepening. Such as gold jewelery up 0.11% MoM, cooking oil up 0.02% MoM, and red chilies up 0.01% MoM. (Kontan)

Investors Observe PBS027. In the previous sukuk auction, the banking sector was interested in the short tenor PBS027, had a relatively good yield and was adjusted to bank liquidity. This 3-year tenor sukuk recorded incoming bids of up to IDR 15.8 trillion or more than 32% of the total incoming bids for this Sukuk auction of IDR 49.7 trillion. The total nominal value won by the government from the five series offered was IDR 9.5 trillion at the last August 2020 Sukuk auction. This entry offer was the highest since March 10, 2020, in line with the prospect of Sukuk amid a downward trend in yields. Early in the week, the rupiah closed 0.47% higher to IDR 14,562 / USD on the spot market. Meanwhile, BI’s middle rate strengthened 1% to the level of IDR 14,554 / USD.

-REVIEW (Aug. 31, 2020)-
FR0081 (5yr): -1.3 Bps to 104.13 (5.50%)
FR0082 (10yr): -2.3 Bps to 101.11 (6.84%)
FR0080 (15yr): -1.7 Bps to 101.24 (7.35%)
FR0083 (20yr): -2.3 Bps to 100.97 (7.40%)

FR0086 (6yr): -1.8 Bps to 100.01 (5.49%)
FR0087 (11yr): -1.2 Bps to 98.95 (6.63%)

UST 2yr: +0.004 point to 0.13%
UST 5yr: -0.002 point to 0.26%
UST 10yr: -0.018 point to 0.70%
UST 30yr: -0.027 point to 1.47%
German Bund 10yr: +0.012 point to -0.39%
UK Gilt 10yr: -0.000 point to 0.31%

CDS 2yr: -3.50% to 35.35
CDS 5yr: +1.62% to 103.60 (as of Aug 20, 2020)
CDS 10yr: -2.62% to 159.16

WTI: -0.83% to USD42.61/Barrel
BRENT: -1.15% to USD45.28/Barrel
Source: Bloomberg