Bond Market Is An Attractive Option For Investment, Please Check Out The Various Supporting Factors

Photo: Doc. Mirae Asset Sekuritas

JAKARTA - The bond market can be an attractive option for people who want to invest. One of the factors is the continued economic recovery, while bond prices fell and triggered an increase in yields in the secondary market.

As stated by PT Mirae Asset Sekuritas Indonesia in Media Day, Thursday, November 3. Mirae Sekuritas predicts Indonesia's economic recovery will continue this year with gross domestic product (GDP) growth in 2022 reaching 5.08 percent, higher than 3.69 percent in 2021.

"We estimate that the national economic recovery will continue this year, supported by community mobility and increasing household consumption, the controlled COVID-19 pandemic, and very high export growth," said Senior Economist at Mirae Asset Sekuritas, Rully Arya Wisnubroto.

He estimates GDP growth for the third quarter of 2022 to increase by 5.6 percent yoy or up 20 basis points from the second quarter of 2022, which is 5.4 percent. This was also supported by the very high January-September 2022 trade balance surplus, reaching US$39.9 billion from the 2021 position of US$35.4 billion.

Meanwhile, the state revenue and expenditure budget (APBN) for the January-September 2022 period recorded a surplus of IDR 60.9 trillion or 0.33 percent of GDP.

The improvement in the domestic economy and the high trade balance surplus, continued Rully, are expected to support the movement of the rupiah exchange rate which had reached IDR 15,600 per US dollar, and pressure on the price of government bonds (state securities/SBN). The fall in bond prices triggered an increase in yields in the secondary market.

According to him, the pressure on the rupiah exchange rate and the bond market was caused by the aggressive increase in the US Federal Funds Rate (FFR) this year, reaching 300 bps to 3.25 percent by September. The amount of 100 bps is equivalent to 1 percent.

He said the increase in the benchmark interest rate also occurred domestically where the BI-7DRRR rose by 125 bps to 4.75 percent to respond to the high rate of inflation. September inflation was 5.95 percent, the highest since October 2015, following the hike in subsidized fuel prices in early September.

“We predict the FFR can rise again to 4.5 percent by the end of the year. Domestically, we predict that inflation for the 2022 period will reach 7.13 percent so that the BI 7-DRR can rise another 25 bps this month to 5 percent from its current position of 4.75 percent," said Rully.

On the same occasion, Fixed Income Research Mirae Asset Sekuritas Dhian Karyantono explained, there was a downward trend in the price of SBN in the debt securities market, which was reflected in the increase in the yield of the 10-year reference series to 7.67 percent on October 25, 2022, before tending to slope to 7.54 percent. at the end of October 2022.

Nevertheless, Dhian views that the current bond market condition is likely to be undervalued and predicts that the price of 10-year bonds could rise, thereby suppressing yields to 7.26 percent by the end of the year assuming a moderate scenario.

"The potential for lower SBN yields at the end of the year compared to current conditions could be a momentum to enter SBN instruments," said Dhian.

Meanwhile, Mirae Asset Sekuritas' Head of Fixed Income, Nita Amalia, said that the total transactions for government and corporate bonds increased by 105 percent in the third quarter of 2022 compared to transactions in the third quarter of 2021. This is in line with the increase in the monthly ranking of securities companies released by the Indonesia Stock Exchange compared to the average ranking in 2021 and 2020.

"This year, Mirae Asset Sekuritas' position in the corporate bond market is dominated by the fourth largest transaction value among 122 securities companies, and the 8th largest transaction value in the government bond market."

According to Nita, Mirae Asset Sekuritas' adjusted net working capital (MKBD) of around IDR 1.3 trillion allows for large volume transactions through the company, including bond transactions.

Mirae Asset Sekuritas' other comprehensive services in the bond market include underwriting activities for debt securities (bonds, MTN and NCD), daily and monthly market updates, monthly Youtube webinars, client gatherings, and bond warehousing.