Emerging Market Positive Response to Biden’s Policy. Yesterday, the Central Bureau of Statistics (BPS) released data on Indonesia’s Gross Domestic Product (GDP) for the 3Q20 period contracted 3.49% YoY. This is the second contraction after the previous quarter, minus 5.32% YoY. This figure also answers market players’ concerns, namely that Indonesia officially recorded a recession for the first time since 1999. However, the domestic bond market has responded more positively to external sentiment, the potential for Biden to win in the presidential election (pilpres) of the United States (US) this time. Until yesterday afternoon, Biden received 253 electoral votes, meaning that he only needed 17 more electoral votes to win the presidential election. Meanwhile, Trump has so far won only 214 electoral votes. For the record, winning the presidential election requires 270 electoral votes. Investors responded positively to the end of the trade war between the US and China, if Biden won. In addition, Biden’s discourse on raising corporate taxes as well as a larger fiscal stimulus has created potential for capital inflow to emerging market countries such as Indonesia. Yesterday, the prices of all benchmark series Government Securities (SUN) rose simultaneously. The benchmark yield for 10-year FR0082 and 15-year FR0080 fell 17.5 bps to 6.43% and 16.1 bps to 7%, respectively.

Corporate Bonds to Improve Next Year. The Indonesia Bond Price Agency (IBPA) Corporate Bond Return Index was at 325.92 at the close of last Thursday. This figure is the highest level, and continues to move up in the last month. There are three factors that drive the index up. First, the risks that are maintained along with the issuance of corporate bonds are of good quality. Nearly three-quarters of corporate bonds issued this year are rated AA-AAA. Second, retail investors are starting to move to mutual funds on a corporate bond basis, this helps to maintain demand for corporate bonds themselves. Third, the current high bank liquidity factor. The funds are ultimately placed in corporate bonds as a hedging instrument for banks. (Kontan)

Indonesian economy 3Q20 Minus 3.49% YoY. Economic growth in 3Q20 still experienced contraction. BPS noted that economic growth in the period July 2020 to September 2020 was minus 3.49% YoY. So that cumulatively, Indonesia’s economic growth from 1Q20, 2Q20, and 3Q20 contracted by minus 2.03% YoY in the GDP announcement in Jakarta. In hindsight, Indonesia’s economy in 2Q20 was recorded at minus 5.32% YoY. The economy in that quarter was under pressure due to the Covid-19 pandemic. Thus, referring to the definition of a recession which means a decline in GDP for two consecutive quarters, Indonesia has officially entered into the brink of recession. (Kontan)

US Presidential Election Results Sentiment Encourages Market. Investors are still watching the results of the US presidential election, as there are still votes in a number of states left. In addition to the potential for an end to the trade war between the US and China, Biden’s discourse on raising corporate taxes and a larger fiscal stimulus has created potential for capital inflow to emerging market countries such as Indonesia. On the other hand, Trump has filed lawsuits and asked for a recount in Pennsylvania and Michigan. Domestic sentiment on the announcement of Indonesia’s economic recession did not put pressure on the bond market yesterday, as market players had anticipated this. The rupiah exchange rate closed up 1.27% to IDR 14,380 / USD on the spot market. Meanwhile, BI’s middle rate strengthened 0.81% to IDR 14,439 / USD. Investors can take advantage of the current momentum again, paying close attention to FR0082, FR0080, and FR0087.

-REVIEW (Nov. 5, 2020)-
FR0081 (5yr): -5.2 Bps to 104.15 (5.46%)
FR0082 (10yr): -17.5 Bps to 104.09 (6.43%)
FR0080 (15yr): -16.1 Bps to 104.44 (7.00%)
FR0083 (20yr): -0.2 Bps to 102.71 (7.23%) (as of Nov. 4, 2020)

FR0086 (6yr): -9.5 Bps to 100.12 (5.47%)
FR0087 (11yr): -2.0 Bps to 99.21 (6.60%)

UST 2yr: -0.001 point to 0.14%
UST 5yr: -0.002 point to 0.32%
UST 10yr: -0.001 point to 0.76%
UST 30yr: -0.018 point to 1.52%
German Bund 10yr: -0.001 point to -0.63%
UK Gilt 10yr: +0.026 point to 0.23%

CDS 2yr: -9.30% to 35.14
CDS 5yr: -6.99% to 86.60
CDS 10yr: -7.13% to 147.66

WTI: -0.91% to USD38.79/Barrel
BRENT: -0.72% to USD40.93/Barrel
Source: Bloomberg