FR0082 Heading to Par, in the midst of waiting for BI meeting results on 15-16 July. A number of market participants project that Bank Indonesia (BI) will maintain the benchmark interest rate at the level of 4.25% at the Board of Governors’ Meeting this week. Market participants also responded positively to the government, which has poured a number of monetary and fiscal policy stimulus in an effort to restore the economy. Based on Bloomberg data, the price of the FR0082 10-year reference series is at 99.67 or close to par. Meanwhile, the price increase of all reference series at the end of last week was also amidst the government’s decision to increase the supply of Government Securities (SUN) to IDR 15 Trillion. The Minister of Finance said that from July to December 2020, the Ministry of Finance (Ministry of Finance) would upsize the issuance target of SUN. This is stated in Government Regulation in Lieu of Law (Perpu) No. 1/2020 that allows BI to buy SUN through the primary market. The burden sharing policy between BI and the Ministry of Finance will encourage liquidity in the SUN market.

New Corporate Bonds Issuance Down 43%. Indonesia Credit Rating Agency (Pefindo) estimates that the issuance of corporate bonds in 2020 will not be the same as the previous year, amid a pandemic and high interest rates. The realization of corporate bonds issuance was only valued at IDR 30.03 trillion or decreased to 42.8% from the same period last year of IDR 52.5 trillion. Until 30 June 2020, Pefindo received a mandate to issue bonds worth IDR 74.16 trillion. Four sectors with significant emissions came from the banking industry, amounting to 13.48% or emissions worth IDR 10 trillion. Furthermore, the finance sector is 11.87% or equivalent to IDR 8.8 trillion. (CNBC Indonesia)

Burden Sharing Inflation Boost. Burden sharing burden scheme of debt financing for economic recovery between BI and the government, can increase national inflation in 2020. First, BI bears interest expense of up to 100% of public goods such as the health budget, social protection, Ministries and Institutions, and regional governments which can reach IDR 397.60 trillion. BI will conduct a private placement to purchase Government Securities (SBN) with a reference to the reverse repo rate. Secondly, BI bears the debt burden on non-public goods specifically for Micro, Small and Medium Enterprises (MSMEs) and non-MSMEs corporations worth IDR 177.03 trillion. Third, the government bears all other nonpublic goods financing worth IDR 329 trillion following market interest rates. (Kontan)

Value of Gold Reserves Boosts Foreign Exchange. BI recorded foreign exchange reserves at the end of June amounting to USD 131.7 billion, up USD 1.2 billion from the previous month of USD 130.5 billion. The biggest increase in foreign exchange reserves came from the monetary gold component. Central bank monetary ownership in June 2020 was recorded at USD 4.47 billion, up 2.98% from the previous month at USD 4.35 billion. The increase in the monetary component of June 2020, influenced by the purchase of monetary gold by BI, and an increase in the price of gold. Based on World Gold Council data, the average price of gold in June 2020 was valued at USD 1,732.2 per troi ounce, up 0.92% from the previous month. (Kontan)

Foreigners interested in short tenors, when the Indonesian capital market was facing a Covid-19 pandemic. Conversely, foreign ownership in long tenors is relatively declining. Based on data from the Directorate General of Financing and Risk Management (DJPPR), foreign ownership in the 1-year SBN tenure increased from 2.4% in 2019 to 3.3% in the June 2020 period. A similar case also occurred in 1-2-year tenors from 6.7% to 9.1% in the same period. This portion is the highest increase in the last five years. On the other hand, foreign ownership in the middle tenure of 5-10 years decreased from 34.1% to 28.6%. We see that foreign investors are still paying close attention to the government’s decision to increase SUN supply to IDR 15 Trillion, this will reduce the price of SUN in the secondary market. While the burden sharing decision between BI and the Ministry of Finance will increase SUN market liquidity. In addition to FR0081, investors can start watching FR0082, FR0080 and FR0083 ahead of the SUN auction tomorrow.

-REVIEW (July 10, 2020)-
FR0081 (5yr): -7.5 Bps to 100.77 (6.31%)
FR0082 (10yr): -2.6 Bps to 99.67 (7.04%)
FR0080 (15yr): -0.7 Bps to 99.61 (7.54%)
FR0083 (20yr): -0.4 Bps to 99.24 (7.57%)

UST 2yr: +0.003 point to 0.15%
UST 5yr: +0.022 point to 0.30%
UST 10yr: +0.032 point to 0.64%
UST 30yr: +0.024 point to 1.33%
German Bund 10yr: +0.005 point to -0.46%
UK Gilt 10yr: -0.004 point to 0.15%

CDS 2yr: +0.67% to 51.51
CDS 5yr: +2.07% to 125.62
CDS 10yr: +0.55% to 194.38

WTI: +2.34% to USD40.55/Barrel
BRENT: +2.10% to USD43.24/Barrel