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Danareksa Debt Research Weekly Report, 25 Jun 2019 : Stronger Signal
June 25, 2019 16:51 WIB

Stronger Signal

The Fed remains dovish
The Fed kept its benchmark interest rate unchanged at the FOMC meeting held on 18-19 June 2019 in the range of 2.25% - 2.50%. However, Powell’s latest statement signals that the Fed may be receptive toward interest rate cuts in the future. At the press release of the FOMC meeting, the Fed said that because of heightened US economic uncertainty it would closely monitor developments in order to determine future policy direction. In addition, the Bloomberg calculation for the Fed Rate implies a 100% probability (ticker: WIRP) as of 24 June 2019 that the Fed rate would be cut in July. However, based on 20 years of historical data, the Fed has never made interest rate adjustments in July.

Strong demand for US treasuries
Nonetheless, demand for US treasuries has increased, pushing the 10-year yield down to 2.01% on 20 June 2019 (49bps lower than Fed rate). As of 21 June 2019, 10-year yield US treasuries noted 2.07% or dropped by 62bps from the end of 2018.

The Rupiah strengthened against the US Dollar
Last week, the Rupiah appreciated by 1.2% relative to the US Dollar to IDR14,155 per USD on 21 June 2019. As such, the Rupiah has appreciated by 2.8% relative to the US Dollar since the end of 2018. Last week, the US index trended lower to 96 points as of 21 June 2019.

Bank Indonesia and the current account deficit
The central banks of India (RBI), Australia (RBA) and Malaysia (BNM) have already lowered interest rates in response to the more dovish stance of the Fed. Bank Indonesia (BI) last week held a Board of Governors’ Meeting (RDG) and as expected, BI kept interest rates at the level of 6%. Looking ahead, BI anticipates a cut in US interest rates one time this year (by 25bps) and two times in 2020 (by 50bps).

In addition, BI also needs to take into consideration the CAD figure in the first quarter of 2019 when it increased to US$ 7 billion (2.6% of GDP), or up from US$5.19 billion in the first quarter of 2018 (2.01% of GDP). As of 24 June 2019, BPS reported a deficit of US$ 2.28 billion for April 2019. This figure is smaller than the figure released by the BPS on 15 May 2019 when it reported a figure of US$ 2.5 billion for April 2019. On the same date, BPS reported a trade surplus for May 2019 of US $210 million. Thus, Indonesia’s 5M19 trade balance recorded a deficit of US$ 2.14 billion, or better than in the same period in 2018 (a deficit of US$ 2.86 billion).

Bullish trend for the Indonesia Government bonds yield
Following an increase in Indonesia’s rating at the end of May 2019 by S&P, the 10-year Government Bond (10-year BTMM ID) yield fell to 7.45% on 21 June 2019 (source: Bloomberg), or down 50bps from the end of May 2019. Meanwhile, Indonesia’s 5-year CDS declined by 24bps to 92bps during the same period. This is in accordance with our previous report which indicates that there is a potential improvement in yields and CDS related to the increase in the rating by S&P at the end of last May.

Increase in foreign ownership
Meanwhile, foreign investors raised their ownership in Indonesian government bonds by IDR16.65 trillion from the end of May 2019 to IDR966.21 trillion (or 38.31% of the total outstanding) on 20 June 2019. Although this figure is still lower than at the end of the first quarter (IDR967.12 trillion), it is still IDR72.96 trillion higher than at the end of 2018.

Government bond auction
The government conducted its latest auction on 18 June 2019 for the SUN series, namely the SPN03190919, SPN12200619, FR0077, FR0078, FR0068, FR0079, and FR0076 series. At the auction, incoming bids reached IDR54.80 trillion or higher than at the previous SUN auction on 21 May 2019 (IDR26.2 trillion). The largest incoming bids were for the FR0077 series (IDR19.81 trillion), followed by the FR0078 series (IDR13.36 trillion). Meanwhile, the amount of winning bids was recorded at IDR24 trillion or higher than at the last SUN auction (IDR10.8 trillion). The largest amount of winning bids was for the FR0078 series (IDR7.90 trillion), followed by FR0077 (IDR5 trillion), FR0068 (IDR4.9 trillion), FR0079 (IDR2.6 trillion), SPN03190919 (IDR1.5 trillion), SPN12200619 (IDR1.1 trillion) and FR0076 (IDR1 trillion).

The auction target is almost met
In the second quarter up until 20 June 2019, the Government absorbed IDR122.80 trillion (including the GSO auction) from the total quarter II 2019 auction target of IDR129 trillion. In 2Q19, the Government will hold an auction again on 25 June 2019 for the SBN series SPNS01122019(re), PBS014(re), PBS019(re), PBS021(re), PBS022(re) and PBS015(re).

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Danareksa Debt Research Weekly Report, 11 June 2019 : Opportunity from Rating Upgrade
June 11, 2019 17:13 WIB

Opportunity from Rating Upgrade

Global Economic Uncertainty
Uncertainty on the global economic outlook and the prospects for the US economy encouraged investors to turn to safe-haven instruments such as US Treasuries. This was reflected in a significant decline in the yield on 10 year UST from the beginning of May. As of 7 June 2019, the yield on 10-year UST dropped by 43bps to 2.09%, with a low of 2.07% on 3 June 2019. The Median Bloomberg survey for the 10-year UST yield at the end of 2019 was down by 5bps to 2.70% in the May survey from the previous survey conducted in April.

Signal for Fed Reference Rate Cuts
WIRP Bloomberg also indicates that FFR benchmark interest rate cuts could take place sooner than expected, possibly in July. This is reflected in the 78% probability of a rate cut at the FOMC meeting scheduled for 31 July. The latest comments made by Powell on 4 June 2019 signal that the Fed is watching developments regarding the impact of trade wars and is prepared to maintain the stability of the US economy.

Improvement in Indonesia’s Credit Rating and Its Impact on Indonesia
On 31 May 2019, S&P Global Rating raised Indonesia’s credit rating from BBB- (stable outlook) to BBB (stable outlook). The increase in Indonesia’s rating mainly reflects continued improvements in the country’s economy and the outlook for brisker economic growth. Meanwhile, policies carried out by the Government have been effective in promoting sustainable public finances and balanced economic growth. In addition, S&P also considers that the Government’s debt burden is low and that fiscal performance is moderate.

The S&P ratings upgrade may potentially have a positive impact on the Indonesian bond market, including rupiah bonds. As a result of this upgrade, Indonesia’s rating has risen from the lowest BBB- rating group to the lowest BBB rating group. Based on Bloomberg SOVR CDS data as of 7 June 2019, Indonesia’s 5Y CDS stood at the level of 107bps. The average CDS 5Y of group BBB (excluding Indonesia) is 66bps, while group BBB- (excluding Italy) is 89bps. Therefore, the difference between the average CDS 5Y group BBB- and BBB is 23bps. Meanwhile, the difference between the average BBB group and the 5Y CDS in Indonesia is 41bps. In 2019, Indonesia’s 5Y CDS is estimated to have the potential to decline towards the average of BBB group level. The ratings upgrade was also reflected in strengthening of the USD/IDR exchange rate. With the seasonal effect of Hari Raya, the potential demand for SUN instruments is expected to increase over the next two to three weeks. Thus, the potential for a decline in yields is quite high during June.

Government bond auction
In the second quarter up until May 2019, the Government absorbed IDR98.80 trillion from the total quarter II 2019 auction target of IDR129 trillion. In 2Q19, the Government will hold an auction again on 18 June 2019 for the SUN series and 25 June 2019 for the SBSN series.

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Danareksa Debt Research Weekly Report, 14 May 2019 : Escalation of the Trade War
May 14, 2019 16:30 WIB

Escalation of the Trade War

Trade war tensions are heightening
In the beginning of December 2018, the United States and China agreed to delay tariff hikes until the beginning of March 2019 for Chinese goods amounting to US$200 billion which were supposed to be effective on 1 January, while discussions between the two countries were still ongoing. In return, China agreed to purchase a substantial amount of US products. On 24 February 2019, President Trump decided to extend the 1 March deadline. However, on 5 May 2019, President Trump through his social media channels said that he would increase tariffs on Chinese goods from 10% to 25% on 10 May 2019 to obtain US$200 billion of funds. The escalation of the trade war tensions has the potential to slow down not only the economies of the two countries, but also the global economy. President Trump and President Xi may meet again at the G-20 Summit which will be held in Japan at the end of June.

Increased volatility in the Rupiah/US Dollar exchange rate
The global economic uncertainty created by the heightened trade war tensions has caused the rupiah to weaken relative to the US dollar. As of 10 May 2019, the Rupiah/US Dollar exchange rate was recorded at IDR14,327 per USD or weakening by 0.47% compared to its previous week’s closing level of IDR14,266 per USD. In terms of volatility seen from the highest daily average and the lowest exchange rate during the week, the volatility of the USD/IDR exchange rate increased over the past week to 76 points compared to 43 points in the previous week.

10-year US Treasury yields and Indonesian Government Bond yields move in different directions
The heightened trade tensions have impacted both the US and Indonesian bond markets. After being above 2.50% for a few weeks, the yield on the 10-year UST was below the 2.50% level in the past week. As of 10 May 2019, the yield on the 10-year UST stood at 2.47%. Meanwhile, the yield on 10-year Indonesian Government bonds trended upwards in the past week. On 3 May 2019, Indonesian Government bond yields were recorded at 7.88%. They then increased to 8.00% on 10 May 2019 after touching 8.10% on 9 May 2019.
Escalation of the Trade War

In line with the increase in yields on Indonesian Government bonds, the Indonesian CDS also trended upwards. Indonesia’s 5-year CDS recorded an increase of 6 points from 96bps on 3 May 2019 to 102bps on 10 May 2019. At the same time, Indonesia’s 10-year CDS rose by 9 points from 167bps to 176bps on 10 May 2019.

Foreign ownership declined slightly
Foreign ownership in SBN decreased by IDR8.95 trillion to IDR959 trillion (38.33%) compared to its highest position this year on 12 April 2019 of IDR968 trillion (38.16%). However, compared to the beginning of 2019, foreign ownership is still up by Rp66 trillion. While Bank Indonesia’s ownership declined by IDR41 trillion, the ownership of SBN by Banks increased by IDR65 trillion. There was a significant increase in the ownership of SBN held by the non-bank sector (up by IDR110 trillion since the beginning of the year).

Government bond auction
The government conducted its latest auction on 7 May 2019 for the SUN series, namely the SPN03190808, SPN12200508, FR0077, FR0078, FR0068, FR0079, and FR0076 series. At the auction, the amount of incoming bids was IDR32.96 trillion or down compared to the amount in the previous SUN auction on 23 April 2019 of IDR41.77 trillion. The largest incoming bid was for the FR0078 series (IDR8.34 trillion), followed by the incoming bid for series FR0068 of IDR6.18 trillion. There were IDR21.57 trillion of winning bids or slightly lower than in the previous SUN auction (IDR23.40 trillion). The largest amount of winning bids was for the FR0078 series of IDR5.85 trillion, followed by FR0068 (IDR4.55 trillion), FR0077 (IDR4.4 trillion), SPN12200508 (IDR3.33 trillion), SPN03190808 (IDR1.37 trillion), FR0079 (IDR1.35 trillion), and FR0076 (IDR1.15 trillion).

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Weekly Report Oct 2017
Country's FCLT Rating
S & P BBB-
Moody's Baa3
Fitch BBB-

Key Market Editor
BI Rate 4.25%
JCI 5,915.00
IDR 13.52
Inflation Sep 2017(%YoY) 3.72%

Market Outstanding
Government Bond IDR 2,060.70 bn
Corporate Bond IDR 371.60 bn

Last Week Trading Volume
Government Bond IDR 73.32 bn
Corporate Bond IDR 4.85 bn

Government Bond Indices
Price Index 134.87
Yield Index 6.23%
Total Return 557.70

Benchmark Yield
FR0061 5 Year 6.19%
FR0059 10 Year 6.53%
FR0074 15 Year 7.13%
FR0072 20 Year 7.32%