Govt launches third bond issue amid strong demand

Urip Hudiono, The Jakarta Post, Jakarta

The government issued on Tuesday bonds worth Rp 3 trillion (US$352.9 million), the third batch of domestic bond issues it has planned for this year to help finance the state budget.

Head of the Ministry of Finance's debt management division, Fuad Rachmany, said that the seven-year bonds were 3.31 times oversubscribed and carried a weighted average yield of 10.72 percent, lower than the 11.57 percent average yield for the bonds last month.

"The government received some Rp 9.9 trillion in total bids from some 40 banks and pension fund companies," Fuad said during a press conference of the bond issue.

In the open auction for the bonds conducted by Bank Indonesia (BI), Fuad continued, bidders had requested yields for the bonds ranging from 10.5 percent to 11.75 percent. The highest yield granted, however, was 10.78 percent, and the lowest 10.5 percent.

The fixed-rate bonds, Fuad added, would be payable twice a year every April and October, and would mature on Oct. 15, 2011, with a coupon rate of 10 percent.

The government plans to issue a total of Rp 28.5 trillion worth of domestic bonds this year, as compared to some Rp 11.7 trillion last year, to help finance the state budget. The first bond issue was in February, worth some Rp 2.5 trillion, while the second was in March, worth some Rp 2 trillion. The government had also issued US$1 billion in international bonds, which was oversubscribed more than four times.

Commenting on the increasing demand towards the bonds, Fuad explained that it was primarily due to investors switching to the alternative secondary market of government bonds, amid the current declining trend in the interest rate of bank time deposits and the central bank's SBI promissory notes.

BI had recently cut SBI's interest rate to around 7 percent and has limited their auction, while the interest rate on time deposits currently stands at an average of some 6 percent.

Fuad also said that the government is itself expecting a further decrease in the yield of its domestic bonds, despite possible plans from the U.S. federal reserve bank of raising the yield of their domestic bonds.

"There is still a difference of some 2 percent between the bonds," he said. "This will allow us to further lower the yield for our bonds."