Inflation Sentiment Support Govt. Bond Market. All Govt. bond (SUN) reference series were limited earlier this week, with yield FR0082 flat at 7.19%. SUN market movement yesterday, amid low inflation trends. Previously, a number of economists projected that inflation would still decline to around 2%. Household consumption, as a major contribution to the inflation rate, still cannot grow significantly. Meanwhile, this low inflation trend can drive capital inflow into the Indonesian domestic financial market, especially the SUN market. Because, Indonesia’s real interest rate has the potential to rise from 4% to 5%. This low inflation projection will also be a sentiment at the last SUN auction in the 2Q20 period. On Tuesday (30/06) today, the government will offer FR0081, FR0082, FR0080, FR0083 and FR0076. In addition to the five series, the government also offers SPN03202001 (New Issuance) 3-month tenor; and SPN12210701 (New Issuance) 12-month tenor. The government can take advantage of the last 2Q20 SUN auction, amidst the anticipation of selective investors buying corporate bonds. This 2Q20 period, cash flow of a number of issuers is projected to be disrupted, and will affect the ability to pay interest and principal.

Banking Loans Low Growth. Credit distribution in the banking industry in May grew 3.04% YoY or the lowest growth since 1998. The Financial Services Authority (OJK) noted, credit weakened in all types of use, and all BOOK categories also weakened. Meanwhile, the deepest slowdown occurred in banks category BUKU III, with a decrease of 0.57%. On the other hand, OJK has monitored the trend of credit restructuring to start sloping in June, because the peak had already been passed in April and May. This has made OJK recommend that banks start lending, both to debtors who restructure or not. (Kontan)

Credit IDR 188.5 Trillion from Government. The government has placed IDR 30 trillion in funds in the State Owned Bank (Himbara) bank as of June 25, 2020. The placement is in accordance with Minister of Finance Regulation (PMK) Number 70/PMK. 05/2020 with a 3-month placement period. Meanwhile, the interest rate charged is equivalent to 80% of BI 7-DRRR, or around 3.42%. By using these funding facilities, banks will extend loans at least three times with lower interest rates. As for the details, Bank Mandiri Tbk (BMRI IJ) targets lending of IDR 21 trillion with a focus on productive, labor-intensive credit, food security, and supporting the national logistics system. Meanwhile, Bank Rakyat Indonesia Tbk (BBRI IJ) will use the funds to support the expansion of MSMEs worth IDR 122.50 trillion. (Kontan)

Yields downward trend, is the latest 2Q20 SUN auction sentiment. There is a possibility that yields will fall again in the long run, encouraging interest in today’s SUN auction. Investors can go back to look at SUN benchmarks FR0081, FR0082, FR0080, and FR0083. Meanwhile, investors can look at the long tenure of FR0076 if they want to find a higher yield. On the other hand, investors are still paying close attention to external sentiment about the risk of a second wave of the corona virus outbreak and US economic data next week, thereby driving up the US dollar index.

-REVIEW (June 29, 2020)-
FR0081 (5yr): +1.8 Bps to 99.84 (6.53%)
FR0082 (10yr): +3.5 Bps to 98.59 (7.19%)
FR0080 (15yr): +4.4 Bps to 98.98 (7.61%)
FR0083 (20yr): +1.2 Bps to 98.67 (7.62%)

UST 2yr: -0.017 point to 0.15%
UST 5yr: -0.029 point to 0.27%
UST 10yr: -0.018 point to 0.62%
UST 30yr: +0.003 point to 1.37%
German Bund 10yr: -0.011 point to -0.47%
UK Gilt 10yr: -0.009 point to 0.16%

CDS 2yr: +0.30% to 58.70
CDS 5yr: +3.78% to 135.47
CDS 10yr: +0.27% to 211.99

WTI: +3.14% to USD39.70/Barrel
BRENT: +1.68% to USD41.71/Barrel