Indonesian government conducted their conventional auctions today and received incoming bids of Rp45.88 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 3.82x. Incoming bids during the auction was noted the second highest since begin year and was slightly lower by 2% compared to the last conventional auction held on 28 Jun. The bids were also higher by approx. 75% compared to YTD average incoming bids during conventional auction amounting Rp26.18 tn. However, DMO only awarded Rp18.00 tn bids for its 3mo, 1y, 5y, 10y and 15y bonds. Incoming bids were mostly clustered on the FR0056 series. 3mo SPN was sold at a weighted average yield (WAY) of 5.34725%, 1y SPN was sold at 6.09952%, 5y FR0053 was sold at 6.64090%, 10y FR0056 was sold at 6.85827% while 15y FR0073 was sold at 7.18357%. No series bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.42X – 3.89X.
The strong demand in our view occurred due to weaker US 2Q GDP growth, fading of FFR hike till the end of this year, positive sentiment as a result of Ibu Sri Mulyani appointed as the new Indonesia Finance Minister, lower July inflationary pressure which confirms that the Indonesia government were success to contain higher food prices volatility during Eid Al Fitr celebration, expectation of another 25bps cut of BI Rate to 6.5%, expectation of better Indonesia growth in 2Q which is expected to come in at 5% YoY level and might be due to demand on govvy’s as a result of fund repatriation. However, the last statement (our opinion) could only be legit if the ownership data of either mutual funds or insurance companies (will be released in coming days) incline significantly.
Till the date of this report, Indonesian government has raised approx. Rp41.42 tn worth of debt through bond auction which represents 47.1% of the 3Q 16 target of Rp88.00 tn. On total, Indonesian government has raised approx. Rp501.3 tn worth of debt through domestic and global issuance which represent 83.7% of this year target of Rp599.0 tn. Assuming that if Indonesia government issues Rp4.00 tn during every sukuk auction in 2Q 16 then the Government needs to issue Rp7.65 tn during every conventional auction (4 upcoming conventional auction in 3Q 16) to meet their target of Rp88.00 tn.