T-bonds well received<\/p>\n
The positive reception toward the Rp 2.7 trillion (US$300
\nmillion) in eight-year Treasury Bonds, which were issued on
\nTuesday through the first public auction the government has ever
\nheld, reflected a higher market confidence in the government's
\nwillingness and ability to repay its debts on time.<\/p>\n
No further details were immediately available as to which of
\nthe 42 bidders finally got the T-bonds that were about three
\ntimes oversubscribed. But the composition of the bidders -- 10
\nforeign banks, two joint venture banks, 21 national banks and
\nnine non-bank finance companies -- shows the wider mix of
\ninvestors in the government securities.<\/p>\n
The higher confidence in the government's ability and
\nwillingness to service its local-currency debts means stronger
\ncredibility of its fiscal and monetary management and inflation
\ncontrol.<\/p>\n
There have indeed been significant improvements in the
\nmacroeconomic and political environment that affect the
\ngovernment's credit risk. The law on government securities that
\nwas enacted last September has provided a stronger legal
\nfoundation for the government to issue debt instruments. The
\ngovernment's total debts (foreign and domestic) as a percentage
\nof the gross domestic product has declined sharply from almost
\n100 percent early last year to around 70 percent at present.<\/p>\n
Likewise the government debt service ratio against tax
\nrevenues is estimated to decrease from 33.4 percent in 2003 to 30
\npercent in 2006. The rupiah exchange which last year appreciated
\nby around 17 percent against the American dollar has continued to
\nstrengthen this year. This in turn will ease the pressure from
\nimported inflation and reduce foreign debt service burdens.<\/p>\n
The politically autonomous Bank Indonesia, which is mandated
\nto ensure price stability, makes investors confident that the
\ngovernment will not be able to monetize its budget deficit.<\/p>\n
On a negative note, though, the over-subscription also
\nreflects the high level of excess liquidity in the banking
\nindustry, a much lower than-expected rate of credit expansion and
\nthe severely limited number of feasible viable business
\nopportunities for investment.<\/p>\n
The good market reception will nevertheless create a virtuous
\ncircle within the government fiscal management because it will
\nfurther encourage further T-bond issues and this in turn will
\nenable the government to repay large sums of bonds maturing
\nwithin the next three years, thereby improving its debt
\nsustainability through longer maturities. In fact, the government
\nis scheduled to issue Rp 2.5 trillion in T-bonds and Rp 2.7
\ntrillion in T-bills (short-term instruments) within the next few
\nmonths.<\/p>\n
A larger volume of securities will at the same time increase
\nthe liquidity in the secondary market, especially after the
\nlaunching of the inter-dealer market through the Indonesian
\nGovernment Securities Trading System last month. Transactions in
\ngovernment bonds have indeed increased from Rp 10.8 trillion a
\nmonth last year to Rp 35.2 trillion a month during the first
\nthree months.<\/p>\n
The weighted average yield of 12.21 percent resulting from the
\ncompetitive bids for the T-bonds that carry a fixed coupon of 12
\npercent was slightly lower than the 12.40 to 12.50 percent range
\nexpected by analysts but was slightly higher than the 12.10 to
\n12.20 percent yield of government bonds in the secondary market
\none day before the auction. The yield also was 81 basis point
\nhigher than the central bank's benchmark one-month interest rate
\nlast week.<\/p>\n
The yield reflects investors' expectations that inflation
\nwill be checked at a single digit, the rupiah exchange rate will
\nremain stable at best or slightly depreciate at worst, and the
\ncentral bank will further slow the incremental decrease in the
\ninterest rate.<\/p>\n
So all in all, as the yield is an average of expected future
\ninterest rates plus some sort of risk premium, the new primary
\nissue of government securities through a competitive bidding
\nshould be welcomed as they created a new market gauge to predict
\neconomic trends such as the rate of economic growth, inflation
\nand changes in monetary and fiscal policies.<\/p>\n
The government benchmark will in turn serve as a risk-free
\nreference parameter for the relative risk profile of ordinary
\ndebtors like corporations or banks.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/t-bonds-well-received-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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