Govt raises another Rp 10.5 trillion from rupiah bonds

Satria Sambijantoro, The Jakarta Post, Jakarta | Headlines | Wed, April 24 2013, 8:34 AM

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The government has upsized its bonds issuance by 50 percent in its latest debt-paper offering in response to strong demand from investors, with yields down significantly on the back of optimism that the new fuel policy will not trigger higher inflation.

The government sold Rp 10.5 trillion (US$1.08 billion) of government bonds on Monday, higher than its indicative target of Rp 7 trillion, said Robert Pakpahan, the head of the Finance Ministry’s debt management office.

The auction was more than three times oversubscribed, with bids topping Rp 22.3 trillion.

“After raising Rp 10.5 trillion on April 23 [...] our realization of gross bonds issuance has now topped Rp 115.02 trillion, or 40.95 percent of our annual target,” said Robert.

Most of the bonds sold during the auction were long tenure bonds.

The government raked in Rp 4.65 trillion alone from the sale of 20-year notes, as well as Rp 4.85 trillion from 10-year and 15-year notes.

The remainder of the funds, Rp 1 trillion, was raised through one-year treasury bills (T-bills).

Bid-to-cover ratio — an indication of bond demand among investors — was 5.49 for the one-year T-bills, as compared to 1.65 for the three long-tenure bonds.

The yield on the 20-year notes and the one-year T-bills declined 0.27 percent and 0.44 percent, respectively, compared to the last auction on April 9. The last auction did not offer 10-year or 15-year notes.

The government’s last auction ended in failure, as it only managed to raise Rp 4.5 trillion, compared to its indicative target of Rp 7 trillion, as investors demanded better yields due to concerns about higher inflation stemming from the planned fuel price hike.

“Today’s auction was different compared to the last one, because investors see that the government’s impending policy of introducing two fuel prices into the market will have little effect on the inflation rate,” Ezra Nazula, the head of fixed income of PT Manulife Asset Management Indonesia, said on Tuesday.

Ezra explained that investors had previously expected an outright price hike that might have driven up inflation — a major variable affecting the yield of government bonds — to as high as 8 percent.

Meanwhile, the new policy of hiking the fuel price only for private cars was predicted would increase inflation to around 6 percent, he said.

Investors’ confidence in Indonesia’s macroeconomic fundamentals was also high following the successful $3 billion dollar-denominated bond sale earlier this month, a situation that would ultimately lead to a more stable currency, explained Ezra.

“The sale of dollar bonds will boost Bank Indonesia’s (BI) foreign exchange reserves, consequently building positive sentiment toward the rupiah.”

Foreign investors have been crowding into Indonesia’s bond market due to the excess liquidity in the global economy, following the introduction of quantitative easing policies in the US, the eurozone region and Japan.

As of April 22, foreign ownership of Indonesian government bonds traded in the secondary market stood at 33.4 percent, compared to 32.7 percent in January.

The high foreign ownership in the bond market shows that “the general perception of Indonesia’s economy is positive”, Bank Danamon economist Dian Ayu Yustina wrote in a research note released on Tuesday.

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