US and Middle East Conflicts Hit SUN Market Early Week. Trump threats impose sanctions on Iraq, as the second largest producer of the Organization of the Petroleum Exporting Countries (OPEC), making a number of investors avoiding risky assets. Previously, US air raids in Iraq killed Iranian military commanders on Friday last week, raising concerns about the disruption of oil supplies. All government bond (SUN) benchmarks raise the yield increase between 3.6 Bps to 5.2 Bps yesterday, based on Bloomberg data. The external negative sentiment, with the opportunity to make investors expect higher yield in this Tuesday’s prime Tuesday SUN auction.
Yesterday, the 10-year benchmark FR0082 recorded a yield increase of 5.2 Bps to a level of 7.11%. While the rupiah exchange rate is relatively awaking below the psychology level of IDR 14,000 per USD. In addition, the early weekend market movements are also in the middle of the data release of domestic foreign exchange reserves which was released on Wednesday (08/01), which is expected to be the sentiment of the driving of rupiah exchange rate.
PP Properti issues IDR 1.2 Trillion Bond. PP Properti, Tbk (PPRO) plans to issue bonds worth IDR 1.2 Trillion. The bonds are entered into a series of Shelf Registered Bond (PUB) II Tranche I. As a result, the issuance of the bonds is part of the PUB II worth of IDR 2.4 Trillion. The proceeds of Tranche I bond issuance will be used to meet the budget needs of IDR 1 Trillion in 2020, capital expenditure (capex).
A total of 40% of the capex will be used for land procurement, as much as 18% for subsidiaries investments, and the completion of mall and hotel construction of 42%. Previously, the subsidiary of the Pembangunan Perumahan, Tbk (PTPP) launched a new project called Mazhoji located in Margonda District, Depok. The apartment offered starts at IDR 350 Million, dominated by studio type with a composition of 80%.
Oil Prices Approach its Highest Level. Tensions between the Middle East, and the US make oil prices return to the highest in the last nine months. Yesterday, West Texas Intermediate (WTI) Oil Prices for delivery in February 2020 had strengthened 1.38% from the day before USD 63.92 per barrel. The oil prices on the New York Merchantile Exchange (NYME) are approaching the highest level on April 2019 at USD 64.72 per barrel.
Similarly, the price of Brent oil for delivery in February 2019, strengthened 0.41% to USD 68.44 per barrel. The oil price increase in post US air raids in Iraq, raised concerns about the disruption of oil supply. The conflict tensions continued to increase after Trump threatened to impose sanctions on Iraq, the second largest producer in the OPEC.
The prime SUN auction is absorbed either by the investors, amid potential external pressures. We project the total entry offers over IDR 30 Trillion with the nominal won can reach IDR 20 Trillion. External sentiment stems from the political tension between the US and Iran, and the sustainability of the first phase peace negotiations between the US and China, will still be an investor’s concern this week.
However, we are optimistic the deal will happen on time, and continue on to the peace negotiations of the second stage. In addition, the rupiah exchange rate that is maintain below the psychological level of IDR 14,000 per USD indicates the good domestic economic fundamentals. Investors can take notice of the SUN Benchmark 5-year FR0081 and 10-year FR0082, which have a good liquidity with relatively attractive yield.
-REVIEW (6 Jan 2020)-
-PRICE OF BENCHMARK SERIES-
FR0081 (5yr): +4.9 Bps to 100.36 (6.41%)
FR0082 (10yr): +5.2 Bps to 99.16 (7.11%)
FR0080 (15yr): +3.8 Bps to 100.49 (7.44%)
FR0083 (20yr): +3.6 Bps to 99.43 (7.55%)
FR0077 (4yr): -5.5 Bps to 106.32 (6.43%)
FR0078 (9yr): +6.3 Bps to 108.00 (7.06%)
FR0068 (14yr): +4.0 Bps to 107.06 (7.55%)
FR0079 (19yr): +2.5 Bps to 107.05 (7.66%)
-YIELD OF GLOBAL BONDS-
UST 2yr: +0.018 point to 1.54%
UST 5yr: +0.017 point to 1.60%
UST 10yr: +0.021 point to 1.81%
UST 30yr: +0.040 point to 2.28%
German Bund 10yr: -0.005 point to -0.28%
UK Gilt 10yr: +0.030 point to 0.76%
-CDS OF INDONESIA BONDS-
CDS 2yr: +2.09% to 19.76
CDS 5yr: +1.93% to 65.32
CDS 10yr: +1.62% to 136.96
-CRUDE OIL PRICES-
WTI: +0.34% to USD63.27/Barrel
BRENT: +0.45% to USD68.91/Barrel