Government sells 2-year bonds

The Jakarta Post, Jakarta

After canceling its last bond sale plans earlier in the month as investors sought higher-than-expected yields, the government on Tuesday sold Rp 3 trillion (some US$312 million) worth of 2-year, rupiah bonds at an average yield of 9.77 percent.

The yield was lower than the yield of between 10.65 percent and 12.25 percent on the bonds requested by investors in the last auction, whereby the government was forced to cancel the Rp 2 trillion of bond sale.

Tuesday's auction however, according to a press statement from the Ministry of Finance, showed that the market had responded well, as reflected in the amount of bids received, which totaled Rp 4.93 trillion.

The fact that the bonds carry a two-year maturity profile also boosted the demand. It was the government's first sale of two- year debt and the government's shortest maturity, according to Bloomberg.

The government has been very active in bonds, both rupiah- and dollar -denominated, in recent years, the proceeds of which, were supposed to be used to help pay off the state budget deficit.

Some Rp 43 trillion worth of bonds have been earmarked to be sold throughout the year. Tuesday's auction was the third local currency issuance this year, bringing it to a total of Rp 11 trillion, in addition to a $1 billion (dollar-denominated) sovereign bond issue in April.

Under the 2005 state budget, the deficit is expected to reach Rp 19.5 trillion, or about 0.8 percent of the country's gross domestic product (GDP).

Moody's puts Indonesia's long-term local currency debt rating at B2, five levels below investment grade, while Standard & Poor's rates the rupiah debt BB -- two levels below investment grade. Both credit agencies give the country's ratings a positive outlook.