Investors Interested in Short Tenors amid GDP Contraction. Statistics Indonesia (BPS) recorded Indonesia’s Gross Domestic Product (GDP) for the 2Q20 period contracted -5.32%. Meanwhile, the benchmark yield for the short 5-year short tenor FR0081 fell -4.5 bps to 5.89%, based on Bloomberg data. The benchmark 10-year FR0082 and 15-year FR0080 yields also registered a decline, namely -2.3 bps to 6.79% and -1.4 bps to 7.23%, respectively. Meanwhile, the 20-year benchmark FR0082 was flat at 7.38% level. The strengthening of SUN is in line with the appreciation of the rupiah. Yesterday, the rupiah strengthened 0.5% to IDR 14,550/USD on the spot market. BI’s middle rate, the rupiah strengthened 0.5% to the level of IDR 14,623/USD. Although Indonesia’s GDP contracted, this realization was not too far from the market consensus which projected a 4.7% contraction.
Corporate Bond Coupon with a High Rating of 7%. Based on data from the Financial Services Authority (OJK), the issuance of bonds for the 2H20 period increased. Until the first week of July 2020, the value of corporate bond issuance in 2020 reached IDR 32.45 trillion. This number is relatively good amidst financial market pressures. A number of issuers have planned to issue bonds, such as Waskita Karya Tbk (WSKT IJ) worth IDR 135.5 billion and Angkasa Pura II worth IDR 2.25 trillion. The 3-year AAA-rated corporate bonds can still offer coupons above 7%. This can be seen from the offer of Angkasa Pura II bonds which give coupons in the range of 7.8% -9.25% per year. Meanwhile, Pupuk Indonesia bonds with AAA rating are also attractive with 3-year, 5-year, and 7-year tenors each offering a coupon of 7%; 7.7%; and 8.3%.
Indonesia’s 2Q20 GDP contracted -5.32% YoY, the biggest decline since 2Q98 of -7.8% YoY. Compared to 1Q20, 2Q20 economic growth also contracted -4.19% QoQ. During the 1Q20 period, the Indonesian economy still managed to grow positively 2.97% YoY. Cumulatively, Indonesia’s economic growth in 1H20 contracted 1.26% YoY. Meanwhile, the current contraction is due to the devastating impact of Covid-19, which caused Indonesia’s economy to contract in 2Q20. Meanwhile, Kadin projects that Indonesia’s economy will decline by 2% in the third quarter. The rebound in Indonesia relies heavily on government stimulus due to the limited capacity of domestic capital. The Indonesian Chamber of Commerce (Kadin) projects that the Indonesian economy in 3Q20 will contract by 2% YoY and annual growth of around 1% YoY. On the other hand, the government needs to give confidence to the public that the Covid-19 response is being carried out well.
US economic pressure has brought the US Dollar into a weakening trend. This has the opportunity to limit the rupiah’s exchange rate to strengthen, it can move in the range of IDR 14,400/USD to IDR 14,600/USD. NHKSI Research projects that the strengthening of short-tenor Government Securities (SBN) prices will continue. Investors can look back at the FR0081, FR0082, and FR0080. Meanwhile, the expectation of a higher yield level amidst the trend of low interest rates could make investors pay close attention to the long tenor FR0083.