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Indonesia raises $875M via bond issuance

Publication Date : 03-04-2014


The Indonesian government sold 9.9 trillion rupiah (US$876 million) worth of debt paper on Wednesday in an oversubscribed auction as the country’s latest trade and inflation data attracted investors.

The Finance Ministry’s debt management office (DMO) originally aimed for 8 trillion rupiah, but with bids reaching 26.2 trillion rupiah, which means the offering was more than four times oversubscribed, the government was prompted to upsize the bond issuance.

“Investors are flocking in, thanks to the latest positive data on the trade balance and inflation,” head of the Finance Ministry’s DMO, Robert Pakpahan, said after the auction.

Inflation fell to the lowest level in nine months at 7.3 per cent in March, while trade balance posted a $785-million surplus in February after experiencing a deficit in the previous month, the Central Statistics Agency (BPS) announced on Tuesday.

“The domestic data was a dominant factor [behind the strong bids] in today’s auction, but there’s also an influence from the current ‘calm period’ in the external environment, as sentiment from the Fed [US Federal Reserve] tapering has begun to dry down,” Robert explained.

All yields fell, with weighted average yield for 10-year government bonds in the last auction touching 7.79 per cent, versus 8.09 pe rcent in the auction on Mar. 4, DMO data shows.

The government sought to capitalise on the strong investor appetite and took advantage of the low-yield environment that could ease its finances when it has to pay back the debt paper when they mature, according to Robert, who also said that the government would not upsize its overall bond issuance until mid-year.

“In the past two weeks, yields are seen moving lower across the curve, particularly on the benchmark tenors, supported by the positive economic data and the stabilizing rupiah,” Dian Ayu Yustina, an economist with privately owned Bank Danamon, wrote in a research note released on Wednesday.

Indonesia’s government bonds were Asia’s best-performing notes this year. Rupiah bonds offered returns of 4.64 per cent year-to-date throughout last week, while on average Asian local currency bonds only posted 0.75 per cent gains, according to the Mandiri Sekuritas Government Bond Index (MSGBI).

However, an additional rally for rupiah bonds in the future may be unjustifiable, as the yields “might have limited room to fall further,” according to Mandiri Sekuritas fixed-income analyst Handy Yunianto.

“Given the recent rally, we recommend investors not to chase bonds for now and wait to buy on weakness or shorten duration and overweight in corporate bonds at the current level,” Handy added.

During Wednesday’s debt paper offering, the government offered five types of bonds (three-month and one-year treasury bills, as well as five-year, 10-year and 20-year notes), which were all sold out.

Investors are opting for short-term notes, as bid-to-cover ratio for three-month and one-year T-bills topped 4.2 and 5.1, respectively — the highest among all the five bonds.

As the rupiah strengthens, Indonesia’s US dollar bonds have also given the highest return for investors at 12.3 per cent so far this year, the most in Asia, as compared to 3.8 per cent in Thailand and 3.0 percent in India, according to HSBC Bond Index.


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