Govt bond issue receives strong market demand

Dadan Wijaksana, The Jakarta Post, Jakarta

The government's first bond issue this year, worth Rp 2.7 trillion (about US$295 million), was well received by the market, with the issue three times oversubscribed.

Minister of Finance Boediono welcomed on Tuesday the market's positive reaction, saying that it should indicate stronger interest on the part of investors in the domestic bond market.

"The strong demand reflects increasing investor interest in the country's secondary market as an alternative for investment," he told The Jakarta Post.

The bonds carries a fixed coupon of 12 percent annually, with interest paid twice yearly, in March and September.

The bond issue is the first batch in the government's plan to issue a total of Rp 7.7 trillion-worth of bonds this year to help refinance maturing bonds. The refinancing measure is part of efforts to ensure fiscal sustainability.

As of December last year, the country's domestic debt stood at Rp 650.4 trillion -- all in the form of bonds, with a large chunk maturing between 2004 and 2009. Most of the bonds were issued to bail out ailing banks during the banking crisis of the late 1990s.

When asked as to the timing and extent of the next bond issue, Boediono declined to give a clear reply, saying that such matters had yet to be decided.

"One thing is for sure; I'd prefer it in the form of T-Bonds rather than the planned T-Bills. We'll discuss this with the House later on," he added.

Based on the agreement with the House of Representatives, of the total bonds to be issued this year, Rp 2.7 trillion would be in the form of T-Bonds, with the remainder in the form of T- Bills.

T-Bonds, or treasury bonds, are bonds that have a long-term maturity period, while T-bills are government bonds that mature within six months to 12 months.

"We'll see where the discussion will direct us, but as far as the budget is concerned, it would create less of a burden if the bonds were T-Bonds because of their longer period," Boediono said.

In December last year, the government also made a similar bond issue, worth Rp 2 trillion, for the same purpose, and it was also oversubscribed three times.

Analysts have said that government bonds have become an attractive investment alternative amid a declining interest rate environment and lower inflation.

Investing in Bank Indonesia SBI promissory notes is no longer attractive as the central bank has been guiding the interest rate lower to around 11.40 percent now from over 17 percent in the beginning of last year.

In addition, government bonds are deemed a safer investment.

According to data from the finance ministry, as of February this year, as many as Rp 59.6 trillion-worth of state bonds were traded and held by investors, mostly banks, pension funds, insurance firms, etc.