Govt bond issue receives strong market demand

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.