Government feels heat of Fed rate hike
The Jakarta Post, Jakarta
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.
"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.
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.
The government claimed that the response from potential investors was strong during the roadshows at Singapore, Hong Kong, New York and London.
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.
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.
"This means that if we go to the market now, our total cost of borrowing will be higher," he said.
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.
The situation has in turn pushed the yield on benchmark U.S. bonds to as high as 4.69 percent.
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.
Yusuf said that the spread for Indonesia's global bond is currently at 2.35 percent.
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.
The pricing was initially slated to take place on March 22.
"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.
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.