FR0082 Yield Drops 6.40 Bps. Indonesian government bond prices on Tuesday (05/19) strengthened due to investor interest in developing country bonds which tend to offer higher yields compared to developed countries. Strengthening bond prices was also driven by the possibility of a BI rate cut. In the Bank Indonesia (BI) Board of Governors’ Meeting, BI decided to keep the 7-Days Reverse Repo Rate at 4.5%.
But there was room to reduce interest rates to encourage economic growth, said BI Governor Perry Warjiyo. If the benchmark interest rate falls, it can have an impact on Indonesia’s exports and imports. This is because the cost of import-export company loans to banks is cheaper than usual. With this, it is expected that investment into the country can also continue to increase and drive the economy.
So that bond prices can rise amid investor purchases. The strengthening of the price of government bond (SUN) is reflect in the three benchmark series. The three series are FR0081 with 5-years tenure, FR0082 with 10-years tenure and FR0080 with 15-years tenure, while FR0083 with 20-years tenor will not change or flat.
The strongest reference series today is the FR0082, which has a tenor of 10-years with a yield reduction of 6.40 bps to 7.75%. The appreciation of the government bond market today is reflect in the fair price of bonds, where the INDOBeX Government Total Return index of Indonesia Bond Pricing Index (IBPA) also strengthen.
The index rose 0.49 points (0.18%) to 269.37 from yesterday’s position of 268.88. Today’s strengthening on the debt market is similar to the strengthening of the rupiah on the foreign exchange market. On Tuesday (05/19), the Rupiah strengthen 0.47% from the previous close. Now USD 1 is price at IDR 14,750/USD in the spot market.
In addition, on Monday (05/18), the government auction six series of Government Sharia Securities (SBSN) to meet some of the funding targets in the 2020 APBN. Routine auctions are usually held every Tuesday. The indicative target at the auction yesterday was IDR 7 trillion, incoming requests were worth IDR 18.85 trillion.
And the government won IDR 9.5 trillion from the six series, referring to the Ministry of Finance’s DJPPR data. Referring to the results of incoming auctions, investors are quite optimistic about this fixed income asset. This can be seen from the achievement of requests that exceed the indicative targets projected by the government.
This means that investor interest in government bonds is very good, with oversubscribe 2.7x. While at the auction of Government Bond (SUN) on Tuesday (05/12), there were 3.7x oversubscribe. Indonesian Bonds Become the third Best. The strengthening of SUN prices is not in line with the weakening in the develop and developing countries’ government bond market, although it varies.
The 10-year SBN is the third best after South Africa and Brazil. The develop and developing countries’ debt securities market is seen to be weakening, all of which have almost record increases in yields. While the weakest state bonds were German bonds with a yield increase of 7.3 bps.
This reflects that global investors continue to pursue Indonesia’s fixed income assets because the yield levels tend to be higher. While the tension between the US-China also supports fixed income assets with minimal risk.