Government feels heat of Fed rate hike
<p>Government feels heat of Fed rate hike</p><p>The Jakarta Post, Jakarta</p><p> In another change of mind over its plans to offer up to US$1
billion in bonds on the global market this month, the government
has decided to temporarily postpone the sales amid rising
inflation and interest rates in the U.S. that could lead to an
increase in the bonds' borrowing cost.</p><p>"We will not be offering the bonds in the immediate future. We
will continue to monitor the market, and wait for the best time
for us to enter the market," Minister of Finance Yusuf Anwar said
on Thursday, without mentioning a specific timetable for the
issue.</p><p>The remarks contradicted earlier statements that seemed to
express optimism about the planned bond issue schedule, with
officials boasting about recent success in overseas "roadshows"
that were used to gauge interest in international markets --
giving rise to suggestions that the government might well auction
the bond this week.</p><p>The government claimed that the response from potential
investors was strong during the roadshows at Singapore, Hong
Kong, New York and London.</p><p>Prior to that however, the government had signaled a possible
delay in the offering, in response to the recent nose dive in the
price of bonds issued by U.S. auto giant General Motors, which
staggered the world bond market.</p><p>On Thursday, Anwar explained that although the roadshows were
deemed as successful, the problem now is the prospect of rising
inflation in the U.S. and the recent interest rate increase by
the U.S. Federal Reserve Bank.</p><p>"This means that if we go to the market now, our total cost of
borrowing will be higher," he said.</p><p>The latest U.S. consumer price index (CPI) report indicated
that inflation was picking up, forcing the Fed to raise its
benchmark rate a quarter-point to 2.75 percent earlier this week.</p><p>The situation has in turn pushed the yield on benchmark U.S.
bonds to as high as 4.69 percent.</p><p>Market analysts have said that Indonesia's global bonds would
appear less attractive if its yield difference -- or spread --
with U.S. bonds was above 2 percent, and the government would
have to pay $80 million more for the bonds if they offered them
now.</p><p>Yusuf said that the spread for Indonesia's global bond is
currently at 2.35 percent.</p><p>Along similar lines, Coordinating Minister for the Economy
Aburizal Bakrie said the government would wait for prices in the
bond market to stabilize before conducting pricing for the bonds.</p><p>The pricing was initially slated to take place on March 22.</p><p>"We expect to be able to obtain a yield of 6.85 or less for
our bonds," he said, referring to the yield that the government
managed to obtain during its sale last year of 10-year bonds
worth $1 billion.</p><p>The government plans to offer bonds amounting to Rp 43
trillion (about $4.6 billion) throughout the year, including
dollar-denominated bonds, whose sale will be managed by Citigroup
Inc., Deutsche Bank AG and UBS AG.</p>
billion in bonds on the global market this month, the government
has decided to temporarily postpone the sales amid rising
inflation and interest rates in the U.S. that could lead to an
increase in the bonds' borrowing cost.</p><p>"We will not be offering the bonds in the immediate future. We
will continue to monitor the market, and wait for the best time
for us to enter the market," Minister of Finance Yusuf Anwar said
on Thursday, without mentioning a specific timetable for the
issue.</p><p>The remarks contradicted earlier statements that seemed to
express optimism about the planned bond issue schedule, with
officials boasting about recent success in overseas "roadshows"
that were used to gauge interest in international markets --
giving rise to suggestions that the government might well auction
the bond this week.</p><p>The government claimed that the response from potential
investors was strong during the roadshows at Singapore, Hong
Kong, New York and London.</p><p>Prior to that however, the government had signaled a possible
delay in the offering, in response to the recent nose dive in the
price of bonds issued by U.S. auto giant General Motors, which
staggered the world bond market.</p><p>On Thursday, Anwar explained that although the roadshows were
deemed as successful, the problem now is the prospect of rising
inflation in the U.S. and the recent interest rate increase by
the U.S. Federal Reserve Bank.</p><p>"This means that if we go to the market now, our total cost of
borrowing will be higher," he said.</p><p>The latest U.S. consumer price index (CPI) report indicated
that inflation was picking up, forcing the Fed to raise its
benchmark rate a quarter-point to 2.75 percent earlier this week.</p><p>The situation has in turn pushed the yield on benchmark U.S.
bonds to as high as 4.69 percent.</p><p>Market analysts have said that Indonesia's global bonds would
appear less attractive if its yield difference -- or spread --
with U.S. bonds was above 2 percent, and the government would
have to pay $80 million more for the bonds if they offered them
now.</p><p>Yusuf said that the spread for Indonesia's global bond is
currently at 2.35 percent.</p><p>Along similar lines, Coordinating Minister for the Economy
Aburizal Bakrie said the government would wait for prices in the
bond market to stabilize before conducting pricing for the bonds.</p><p>The pricing was initially slated to take place on March 22.</p><p>"We expect to be able to obtain a yield of 6.85 or less for
our bonds," he said, referring to the yield that the government
managed to obtain during its sale last year of 10-year bonds
worth $1 billion.</p><p>The government plans to offer bonds amounting to Rp 43
trillion (about $4.6 billion) throughout the year, including
dollar-denominated bonds, whose sale will be managed by Citigroup
Inc., Deutsche Bank AG and UBS AG.</p>