Daily Commentary (23-Aug): All Rupiah Asset Classes Rebound; Extended burden-sharing between MoF and BI to Handle COVID-19 Cost

Early this week, all rupiah asset classes rebounded, in line with regional. The JCI rose significantly by 1.3% to 6,109.8 (+0.7% MTD or +2.2 % YTD), although foreign reported a slight net inflow of only Rp2.2bn (net inflow of Rp2.4tn MTD or +Rp20.1tn YTD). Most Asian equity indices also finished strong during the first trading day this week, with the Nikkei and Hang Seng indices bouncing, each by 1.8% and 1.1% to 27,494.2 (-0.2% YTD) and 25,109.6 (-7.8% YTD) after last week’s heavy losses. The rupiah also appreciated by 0.3% to Rp14,413/USD (appreciated by 0.4% MTD or depreciated by 2.6% YTD).

INDOGB yields fell slightly, with foreign reporting net buy of Rp231.8bn, according to the CTP PLTE on Monday. According to Bloomberg, the 5-yr FR86 benchmark series was trading at 101.39 (+0.01%) or yielded 5.16% (-0.2 bps), the 10-yr FR87 at 101.13 (+0.06%) or yielded 6.34% (-0.8 bps), the 15-yr FR88 at 99.25 (+0.04%) or yielded 6.33% (-0.4 bps), and the 20-yr FR83 at 104.55 (+0.03%) or yielded 7.06% (-0.3 bps). Regarding the 10-yr RoI USD global bond that will mature in Mar-2031, its price fell slightly to 97.34 (-0.14%), yielding 2.16% (+1.7 bps), and the 5-yr CDS fell slightly to 73.82 (-0.71 bps).

In the latest DMO bond flow data as of 20-Aug (reflecting trading on 18-Aug), foreign ownership in government bonds went up slightly by Rp0.84tn to Rp976.13tn (still net inflow of Rp10.3tn MTD or +Rp2.2tn YTD) or 22.5% of total outstanding. YTD, the biggest net buyer of government bonds (incl. sukuk) is onshore banks at Rp147.8tn, followed by Bank Indonesia (BI) at Rp123.5tn, insurance & pension fund at Rp91.3tn, retail investors at Rp67.9tn, and others at Rp74.7tn.

Based on the DMO bond flow data as of 20-Aug, the biggest net buyer in the conventional bond auction on 18-Aug was still onshore banks at Rp20tn, followed by BI at Rp4.1tn. Thus, BI has already bought government bonds in the primary market (including sukuk) totaling Rp136tn YTD or only 19.8% of total issuances through auction and bought Rp5.7tn in the secondary market.

Today, the Government will hold another sukuk auction on 23-Aug, targeted to issue Rp10tn, or lower than the prev. sukuk auction which targeting Rp12tn. As scheduled, the Government will offer 6-mo SPNS, 2.9-yr PBS031 (reopening), 4.9-yr PBS032 (reopening), 12.6-yr PBS029 (reopening), 15.5-yr PBS004 (reopening) and 25.2-yr PBS028 (reopening). We still expect demand to remain robust, as strong support from onshore investors; ranging Rp32-42tn.

MoF and BI will sign Joint Ministerial Decree 3 (SKB 3) to do another burden-sharing in 2021 and 2022 to tackle the COVID-19 pandemic that needs tremendous cost, such as for healthcare and social support. Therefore, BI will purchase government bonds totaling up to Rp215tn in 2021 (on top of the Rp136tn YTD purchased as of 24-Aug-2021) and Rp224tn in 2022 (vs. Rp574.5tn burden-sharing through SKB 2 in 2020), via private placement VR bonds with reference rate i.e. 3mo BI Reverse Repo Rate. From SKB3 issuances scheme, BI also would also waive interest rate from Rp58tn and Rp40tn for VR bonds issued in 2021 and 2022. In our calculation, SKB 3 can decrease the 2-weekly average per auction to only Rp27.1tn (vs. Rp38.3tn in our previous calculation).

(Source: Mandiri Sekuritas)