MNC Securities: China-US Peace Agreement Becomes Positive SUN Sentiment

MNC Sekuritas estimates that Sovereign Debt Instruments will still potentially experience an escalation in commerce Monday (02/04/2019), supported by positive sentiment from the China-US trade agreement.

MNC Sekuritas Head of Fixed Income Research Division I Made Adi Saputra wrote that in addition, the market was still warm with the recognition of the Fed in the past week being patient (dovish) in assessing the escalation of interest rates going forward, to the extent that the Fed still supporting its benchmark interest rate in the range of 2.25% -2.5%.

“With a number of these factors, we recommend that investors continue to observe the direction of SUN price movements in the secondary market. The direction of movement in the exchange rate will provoke movement in SUN prices on the secondary market,” he said in a daily study on Monday (4/2 )

Some reasonably exciting series to be observed include the following FR0070, FR0075, FR0061, FR0069, FR0053, and FR0056.

On Friday’s trading (1/2), SUN prices experienced an escalation along with the strengthening of the rupiah exchange rate against the US dollar. The price changes that occur on average are 73 bps, to the point that it pushes down the average yield rate by 10 bps.

SUN prices in the 1-4 year short tenor experienced an escalation of 37 bps, which resulted in yields falling by 10 bps. Meanwhile, SUN with a 5-7 year tenure felt an average price change of 30 bps which led to a decline in yields of up to 18 bps.

For the price of SUN with a tenor of more than 7 years, there was an escalation in the average rate of 94 bps which caused an evolution of yield of 32 bps.

Price increases were also dominant for the evolution of the benchmark series SUN yields. The most significant price increase occurred in the 15-year benchmark series, which amounted to 280 bps, which led to a decline in return of 33 bps.

For the 5-year benchmark series SUN, the yield fell 7 bps which were driven by an escalation in the price of 32 bps. Meanwhile, 10-year SUNs experienced a decrease in the yield of 11 bps due to an evolution of 80 bps.

For a 20-year tenor SUN, there was a decrease in the yield of 19 bps amid increasing price changes to reach 182 bps.

The limited movement of SUN yields on trading last weekend was provoked by the case of rupiah exchange rate movements which felt a weakening against the US dollar. At the beginning of the trade, the rupiah started with a rally, but in the middle of the trading session felt a weakness before returning to indicate strength before closing.

Besides, the positive sentiments of the China-US trade agreement also boosted the price of state bonds amid the Fed’s cleverness.

In the past week, the movement of prices of US dollar-denominated SUN has seen positive changes amid strong US Treasury yields.

The INDO24 yield felt a decrease of 4 bps to a level of 3.722% after experiencing an escalation in the price of 18 bps. Furthermore, the INDO29 yield appeared to decline 6 bps to 4,074% after suffering an increase of 53 bps.

Meanwhile, INDO44 and INDO49 indicate changes in yields every 1.6 bps to the levels of 4.931% and 0.14 bps to the level of 4.841%. This change was caused by price movements that experienced an escalation of 26 bps and 2.4 bps respectively.

SUN trading volume which was filed at the end of the trading weekend was valued at IDR 21.25 trillion out of 46 series transacted.

The highest commercial volume was found in the reference series SUN, namely, FR0078, with a value of IDR4.5 trillion from 144 transactions and followed by series FR0077 with a value of Rp2.79 trillion for 98 transactions.

Meanwhile, the commercial volume of corporate debt that was filed was higher than the previous retail amount, reaching Rp1,349 trillion from 43 series transacted.

The Tower Bersama Infrastructure Phase I Year III Sustainable Bonds (TBIG03CN1) becomes a corporate bond with an enormous trading volume, which is IDR 200 billion from 2 transactions. Followed by 2015 Series C Indonesia Eximbank II Phase V Sustainable Bonds (BEXI02CCN5) worth Rp180 billion from 3 deals.

Meanwhile, the rupiah strengthened 28 pts (0.20%) to the level of Rp13,945 per US dollar on Friday (1/2). Strengthening occurred amid a regional currency correction against the US dollar.

The rupiah led the strengthening of regional currencies, followed by the Japanese yen (JPY) by 0.01%. In contrast, the deepest weakening was found in the South Korean won (KRW) and China’s renminbi, each at 0.56% and 0.52%.

Yields on the 10-year US Treasury have blocked up 5 bps to 2.684%, while the 30-year tenor was blocked up 2 bps to 3.025%. This movement occurred in the midst of the various US stock market situation.

The DJIA index was blocked up 26 bps to 25063.89, and the NASDAQ index was prevented, losing 25 bps to 7263.87.

Meanwhile, the UK bond market (Gilt) and the 10-year German bond market feel a positive direction of movement, so that each is at the level of 1.251% and 0.167%.