Investors Are Interested in Long Tenors. In the 4Q20 Initial Sukuk auction on Tuesday (13/10) yesterday, the government managed to win IDR 11.9 trillion. This figure exceeds the indicative target set at IDR 10 trillion. In the process, the government recorded 2x oversubscribed with incoming bids worth a total of IDR 25.85 trillion. The largest bid was booked PBS025 worth IDR 8.13 trillion (bid to cover ratio 2.17), and won worth IDR 3.75 trillion. On the other hand, the lowest bid in the PBS027 series was IDR 2.73 trillion (bid to cover ratio 1.71x) and was won worth IDR 1.6 trillion. In the previous sukuk auction, the government won only IDR 6.4 trillion, and conducted an additional auction the next day. This means that the initial 4Q20 sukuk auction indicates that investor interest has begun to increase after two previous auctions had decreased. This investor’s interest is amidst the ratification of the Job Creation Act (UU Ciptaker). Although, this law also triggered protests from among workers and students.

Adhi Karya Issues IDR 2 Trillion Bonds. Adhi Karya Tbk (ADHI) is offering IDR 2 trillion Phase I Sustainable Bonds, which is part of the Sustainable Public Offering (PUB) III totaling IDR 5 trillion. Adhi Karya has obtained a rating from PT Pemeringkat Efek Indonesia (Pefindo) on this bond issuance, namely A-. Meanwhile, 50% of the proceeds from the bond issuance will be used for capital expenditures in the form of fixed assets such as project and factory equipment and investment in infrastructure projects. In addition, as much as 31.25% for refinancing, and the remaining working capital for light rail transit (LRT) projects and other infrastructure projects. For information, Adhi Karya booked new contracts of IDR 6.2 trillion by the end of September 2020, or an increase of 32% compared to the acquisition of new contracts in the previous month of IDR 4.7 trillion. This brings the total value of contracts handled (order book) the company achieved to IDR 36.7 trillion. (Investor Daily)

BI Holds Interest Rates at 4%. Bank Indonesia (BI) has decided to hold the benchmark interest rate at 4% at the BI Board of Governors (RDG) Meeting in October 2020. One of the indicators’ considerations is low inflation. From January 2020 to September 2020, inflation was recorded at a low 0.89% ytd and on an annual basis, inflation for September 2020 was recorded at 1.4% yoy. With this low inflationary movement, BI sees that inflation until the end of the year will be below the lower limit of the target range of 2%. In addition, BI also considers conditions in the rupiah exchange rate. When compared to the level at the end of 2019, the rupiah exchange rate as of 12 October 2020 still recorded a depreciation of 5.56% ytd. Meanwhile, another consideration in implementing monetary policy is the urgency of encouraging sluggish economic growth due to the Covid-19 pandemic. Furthermore, in supporting economic recovery, BI will emphasize the quantity route, namely by providing liquidity in banks. Until now, BI has distributed banking liquidity of up to IDR 667.6 trillion. (Kontan)

Positive Sentiment on Interest Rates, Encouraging the Bond Market. BI’s decision to maintain the benchmark interest rate is still inline to encourage domestic economic recovery. Yesterday, the Board of Governors Meeting of Bank Indonesia decided to hold the BI 7 Day Reverse Repo Rate at 4%, in line with the consideration of the need to maintain Rupiah stability amid the low inflation trend. In the midst of inflation, which is predicted to remain at a low level, it makes fixed income assets such as government bonds more attractive because the real return of yields is also considered higher. In the short term, investors can take advantage of this momentum by looking at the SUN benchmark series FR0081 and FR0082.

-REVIEW (Okt. 13, 2020)-
FR0081 (5yr): -1.2 Bps to 103.14 (5.72%)
FR0082 (10yr): -1.5 Bps to 101.06 (6.85%)
FR0080 (15yr): -1.2 Bps to 101.07 (7.37%)
FR0083 (20yr): +0.3 Bps to 100.95 (7.40%)

FR0086 (6yr): +0.8 Bps to 99.05 (5.70%)
FR0087 (11yr): -0.6 Bps to 97.68 (6.81%)

UST 2yr: -0.016 point to 0.14%
UST 5yr: -0.033 point to 0.30%
UST 10yr: -0.048 point to 0.72%
UST 30yr: -0.062 point to 1.51%
German Bund 10yr: -0.012 point to -0.55%
UK Gilt 10yr: -0.032 point to 0.23%

CDS 2yr: +0.72% to 40.91
CDS 5yr: +0.11% to 92.65
CDS 10yr: +0.51% to 157.70

WTI: +1.95% to USD40.20/Barrel
BRENT: +1.74% to USD42.45/Barrel
Source: Bloomberg