Govt issues bonds amid strong demand

Govt issues bonds amid strong demand

The Jakarta Post, Jakarta

The government on Tuesday issued some Rp 2 trillion (US$235.29
million) worth of bonds, which were oversubscribed more than two
times amid strong demand from investors.

The Ministry of Finance said in a statement that the weighted
average yield was 11.57 percent, lower than the 11.82 percent
average yield for the bonds issued last month.

The ministry added that the bonds would mature on Dec. 15,
2012, with a coupon rate of 11 percent.

The government plans to issue a total of Rp 28 trillion worth
of domestic bonds this year in a bid to help finance the 2004
state budget. Tuesday's offering is the second issue to date this
year. The first issue was in February and was worth around Rp 2.5
trillion.

Earlier this month, the government also issued US$1 billion in
international bonds, the country's first sovereign issue since
the late 1990s financial crisis. The issue was oversubscribed
more than four times amid strong demand from global investors who
have been heartened by the current stability in the country's
macroeconomic situation.

The Ministry of Finance said that it received Rp 5.67 trillion
in total bids for the Tuesday bond issue. The highest yield
granted by the government was 11.60 percent and the lowest was
11.40 percent. This compares with a highest yield of 12 percent
and lowest yield of 11.65 percent in last month's bond auction.

Analysts have said that the current declining trend in
domestic interest rates has created great interest in government
bonds, particularly as pension and insurance companies have
started to switch some of their money from bank time deposits
into bonds. The interest on time deposits currently averages
around 6 percent, compared to a coupon rate of 11 percent for
government bonds.

Plans by Bank Indonesia to reduce the frequency with which it
auctions its SBI promissory notes from a weekly basis to once a
month starting in June or July have also forced banks to seek
alternative vehicles in which to invest their excess liquidity.

On Tuesday, Bank Indonesia said that it would not auction SBI
notes on Wednesday as none of those in circulation were maturing.
Analysts said that this prompted banks to purchase the latest
government bonds.

The banking industry, according to one estimate, has excess
liquidity of between Rp 25 trillion and Rp 30 trillion per day.

Foreign investors have also shown strong interest in the
government's domestic bonds amid a declining trend in global
interest rates. This is reflected in the fact that while foreign
investors only held around Rp 4 trillion in domestic bonds in
September last year, by January this amount had more than
doubled.

The purchase of domestic bonds by foreign investors should
help further stabilize the local currency as dollars will flow
into the country as a result.