Deflation Maintain Real Return Bonds. Low demand for the public, made August inflation at a minus level (deflation) of 0.05%. Public demand has decreased due to the Covid-19 outbreak. Meanwhile, the easing of the PSBB has actually made positive cases of the corona virus increase. On the other hand, this low inflation maintains the real return of bonds, and makes investors avoid long-term risks. This has attracted investors to short tenors at the Sukuk auction last Tuesday. Investors are interested in PBS027 (3-year) and PBS026 (4-year), each posting incoming bids of IDR 8.7 trillion and IDR 8.2 trillion, respectively. In addition, short tenors are also in accordance with bank liquidity conditions. For the record, the banking sector is currently the largest shareholder of SBN at IDR 1,197 trillion or representing 35.9% of total tradable SBN valued at IDR 3,335 trillion.

Jasa Marga Single Digit Bond Coupon. Jasa Marga Tbk (JSMR IJ) announced plans for a public offering of sustainable bonds with a principal amount of IDR 2 trillion. Jasa Marga Sustainable Bond II Phase I Year 2020 is part of Jasa Marga Sustainable PUB with a target fund to be raised of IDR 4.5 trillion. The bonds will be issued in four series, namely: Series A with IDR 1.10 trillion coupon 7.90% 3-year tenor; Series B, amounting to IDR 286 billion coupons 8.25% with a tenor of 5 years; Series C with IDR 90.50 billion coupon 8.60% 7-year tenor; and Series D with IDR 523.60 billion coupon for 9% 10-year tenor. This bond has received an idAA- rating from the Indonesian Securities Rating Agency (Pefindo). Meanwhile, the schedule for the initial bond offering is on September 2-3 2020, allotment on September 4, 2020 and listing on the Indonesia Stock Exchange (IDX) on September 9, 2020. (CNBC Indonesia)

Volatile Prices Boost Deflation in August. The Central Statistics Agency (BPS) noted that in August 2020 there was a decline in prices (deflation) of 0.05% MoM. Meanwhile, the inflation rate for the period January 2020 to August 2020, there was an inflation of 0.93% YtD. Meanwhile, on an annual basis, there was inflation of 1.32% YoY. When viewed from its components, volatile prices contributed to deflation in August 2020. Prices of volatile goods in August 2020 then experienced deflation of 1.44% MoM. This contributed to deflation of 0.24%. The deflation in administered prices was driven by deflation in the foodstuff component which deflated 1.29% MoM. Meanwhile, the core component in August 2020 still recorded an increase in prices. August 2020 core inflation was recorded at 0.29% MoM with a share of 0.19% inflation. The highest driver of core inflation was an increase in the price of gold jewelery which contributed to inflation by 0.12%. (Kontan)

PMI Data Supports the Bond Market. In addition to maintained real returns, PMI data is a positive sentiment for the bond market today. The PMI for Indonesia’s manufacturing sector in August expanded to a level of 50.8. This figure is up from the previous month which was still contracted at the level of 46.9. On the other hand, investors are keeping a close eye on the long-term impact of deflation, raising the investment risk profile in Indonesia. Deflation in line with decreasing purchasing power will exacerbate Indonesia’s domestic economic growth. Yesterday, the rupiah closed slightly lower by 0.07% to IDR 14,573 / USD on the spot market. Meanwhile, BI’s middle rate depreciated 0.42% to IDR 14,615 / USD. In the short term, investors can take advantage of the short tenor momentum FR081 and FR0086.

-REVIEW (Sept. 1, 2020)-
FR0081 (5yr): -1.2 Bps to 104.17 (5.49%)
FR0082 (10yr): -1.2 Bps to 101.19 (6.83%)
FR0080 (15yr): +0.7 Bps to 101.17 (7.36%)
FR0083 (20yr): -0.1 Bps to 100.98 (7.40%)

FR0086 (6yr): -1.4 Bps to 100.08 (5.48%)
FR0087 (11yr): +2.2 Bps to 98.79 (6.66%)

UST 2yr: +0.001 point to 0.13%
UST 5yr: -0.014 point to 0.25%
UST 10yr: -0.036 point to 0.67%
UST 30yr: -0.055 point to 1.42%
German Bund 10yr: -0.023 point to -0.42%
UK Gilt 10yr: -0.017 point to 0.29%

CDS 2yr: -3.08% to 34.26
CDS 5yr: +1.62% to 103.60 (as of Aug 20, 2020)
CDS 10yr: -2.38% to 155.36

WTI: +0.35% to USD42.76/Barrel
BRENT: +0.66% to USD45.58/Barrel
Source: Bloomberg