FR0083 and FR0076 Incoming Bid Increase. The 20-year and 28-year tenors posted incoming bids of IDR 7 trillion and 8.9 trillion, respectively. This figure is an increase compared to the previous auction of IDR 6.3 trillion and IDR 7.8 trillion. A number of market players want the high yields offered by long tenor SUN, amid the current trend of low interest rates. In yesterday’s auction, FR0083 and FR0076 posted weighted average yields at the levels of 7.27% and 7.34%. The yield is 9 bps lower than the previous auction on August 11. On the other hand, high liquidity and NPL risk have made the banking sector interested in the short tenors FR0086 and FR0087. The two short tenor series posted incoming bids of IDR 30 trillion and IDR 15.1 trillion, with a weighted average yield of 5.41% and 6.46%.

Fitch Cuts Agung Podomoro’s Rating. According to Fitch, the rating cut was largely influenced by the company’s liquidity factor. Meanwhile, Agung Podomoro Land reported the results of 1H20 sales, the effects of the pandemic and in terms of recurring mall revenue, as well as a drastic drop in food traffic. Meanwhile, a number of hotels have not yet opened. The occupancy of hotels owned by APLN has decreased significantly during 1H20, with the average occupancy such as Indigo Hotel at 27%, Pullman Vimala at 36%, Amaris Thamrin City by 28%, BnB Kelapa Gading by 47% and Harris and POP! Festival Citilink Bandung by 28% and 24%. The company posted sales and operating revenues of IDR 1.72 trillion in 1H20 with a gross profit of IDR 850.4 billion and a net profit of IDR 116.7 billion.

Budget deficit of IDR 330.2 trillion. The Ministry of Finance noted that the 2020 State Budget deficit until July 31, 2020 reached IDR 330.2 trillion or 2% of Gross Domestic Product (GDP). In Presidential Regulation (Perpres) 72/2020, the government targets a state budget deficit of IDR 1039.2 trillion or 6.34% of GDP. The position of the State Budget until July 2020, the primary balance is negative IDR 147.4 trillion. This is a very large increase compared to last year’s IDR 25.3 trillion. Meanwhile, state revenue reached IDR 922.2 trillion or 54.3% of the 2020 revenue target. Annually this figure shows a contraction of 12.4%. Currently, the government provides many tax incentives for the public and the business world. Meanwhile, state spending reached IDR 1,252.4 trillion or 45.7% of the target or grew by 1.3%. The expenditure is focused on handling Covid-19 and the National Economic Recovery (PEN) program. For the record, spending increased due to Covid, and therefore the impact on the deficit was huge. Until the end of the year it is projected to be 6.34% of GDP, until the end of July the deficit is 2% of GDP.

Lack of Sentiment Colored the Bond Market. The movement of the SUN market today was relatively limited, after strengthening in yesterday’s trading. Economic growth for the 3Q20 period, which is projected to remain negative, will be a sentiment to hold the market’s pace today. Yesterday, the rupiah strengthened again, by 0.15% to IDR 14,649 / USD on the spot market. Meanwhile, BI’s middle rate strengthened 1.09% to IDR 14,632 / USD. This appreciation of the rupiah, amid abundant liquidity in the US dollar, followed the Fed’s quantitative easing policy. Investors need to pay close attention to FR0086 and FR0087 which have recorded significant increases over the past two weeks. On the other hand, market players can start to pay attention to the long tenors FR0083 and FR0076, which offer more attractive yields than short tenors.

-REVIEW (Aug. 25, 2020)-
FR0081 (5yr): -8.7 Bps to 104.26 (5.47%)
FR0082 (10yr): -0.6 Bps to 102.36 (6.67%)
FR0080 (15yr): +1.2 Bps to 102.43 (7.22%)
FR0083 (20yr): -0.5 Bps to 102.03 (7.30%)

FR0086 (6yr): -12.9 Bps to 100.62 (5.36%)
FR0087 (11yr): -2.2 Bps to 100.13 (6.48%)

UST 2yr: -0.002 point to 0.15%
UST 5yr: +0.011 point to 0.29%
UST 10yr: +0.029 point to 0.68%
UST 30yr: +0.038 point to 1.39%
German Bund 10yr: -0.059 point to -0.43%
UK Gilt 10yr: +0.050 point to 0.26%

CDS 2yr: -1.00% to 36.79
CDS 5yr: +1.62% to 103.60 (as of Aug 20, 2020)
CDS 10yr: -0.84% to 164.38

WTI: +1.71% to USD43.35/Barrel
BRENT: +1.61% to USD45.86/Barrel
Source: Bloomberg