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Weekly Update
Danareksa Debt Research Weekly Report, 27 November 2018 : Brighter November
November 27, 2018 16:05

Brighter November

The rupiah strengthened; oil prices declined

In November, the Rupiah strengthened against the US dollar by 4% from IDR15,203 per USD at the end of October 2018 to IDR14,544 per USD on 23 November 2018. In the week beginning 16 November 2018, the rupiah strengthened by 0.47% from IDR14,612 per USD. In terms of volatility which is calculated by the weekly average of the highest and lowest levels, the volatility of the USD against the rupiah was lower last week. This was reflected in the decline in volatility from 96 points in the previous week to 59 points last week.

Meanwhile, world oil prices fell significantly during November 2018, down 21% for Brent and 23% for WTI. Last week alone, oil prices slumped by 12% for Brent to USD58.57 per barrel and by 11% for WTI to USD50.22 per barrel. The WTI price is at its lowest level since 9 October 2017 (USD 49.58 per barrel). These decline are due to high oil supply. Given these developments, the OPEC and Russia meeting scheduled to be held in December 2018 will be eagerly awaited.

Continuing bullish movement
The Indonesian bonds market remained bullish last week. The Danareksa Government Bonds Yield Index stood at 8.08% as of 23 November 2018, or down by 8bps over the week and down by 50bps compared to its level on 31 October 2018 of 8.58%. In line with the decline in yields, the 10-year Indonesian CDS was down by 5bps from 235bps on 31 October 2018 to 230bps on 23 November 2018. The 10-year US treasury yield declined by 10bps from 3.15% on 31 October 2018 to 3.05% on 23 November 2018. Apart from the strengthening of the rupiah, the decline in yields was also driven by capital inflows from foreign investors. During November, foreign ownership increased by IDR24.89 trillion from IDR864.32 trillion on 31 October 2018 to IDR889.21 trillion on 21 November 2018. In proportional terms, foreign ownership increased by 0.63%.

This year’s remaining government bond auctions have been cancelled
The government held the last SUN auction on 21 November 2018 for the SPN031900222, SPN12190801, FR0077, FR0078, FR065 and FR075 series. At the auction last week, the total incoming bids were recorded at IDR41.63 trillion. This amount was lower than at the previous SUN auction on 6 November 2018 in which the incoming bids reached IDR59.48 trillion. The total winning bids were IDR15 trillion or lower than the winning bids at the previous SUN auction. The largest number of incoming bids was for series FR0077 which amounted to IDR12.23 trillion followed by FR0078 (IDR9.82 trillion). The most winning bids were for the FR0077 series (IDR5.25 trillion) followed by FR0078 (IDR4.30 trillion). Details of the auction results can be found in Exhibit 7.

The Government were scheduled to hold four auctions by 18 December 2018: two SUN auctions and two SBSN auctions. However, based on a press release conducted by the DJPPR on 22 November 2018, the remaining SUN and SBSN auctions in 2018 have been cancelled. The cancellation of the planned issuance of SBN in the primary market was decided after considering the outlook for fulfilling the 2018 state budget financing target sourced from SBN issuances. As of 23 November 2018, the issuance of gross SBN had reached IDR768.22 trillion or 96% of the total target of IDR798.98 trillion.

Based on data from the Ministry of Finance as of 31 October 2018, state revenues reached IDR1,484 trillion or 78.3% of the 2018 state budget ceiling. This is 20% higher than the state revenues in the same period the previous year. Meanwhile, the budget deficit until October 2018 reached IDR236.99 trillion or around 1.60% percent of GDP or lower than the previous projection of 2.2%.