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.