Govt to issue Rp 3t bonds this month

The Jakarta Post, Jakarta

The government will auction some Rp 3 trillion (about US$353 million) worth of bonds on April 27, the Ministry of Finance announced on Tuesday.

In a press statement the ministry said the bonds would mature on Oct. 15, 2011.

The government plans to issue a total of Rp 28 trillion worth of domestic bonds this year in a bid to help finance the current state budget.

It has so far issued some Rp 4.5 trillion bonds, the first was in February (Rp 2 trillion) and the second was in March (Rp 2.5 trillion).

The government also issued its first international bonds since the 1997 financial crisis, totaling US$1 billion. The issue has received strong interest from global investors, who are heartened by rising stability in the country's economic conditions and the issue's rarity at a time when global interest rates are declining.

Last month's issue was also oversubscribed by a factor of two amid strong demand from investors. The bonds were issued at a weighted average yield of 11.57 percent, lower than the 11.82 percent average yield for the bonds issued in February.

Analysts have said 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.

Foreign investors have also shown increased interest in the government's domestic bonds also because of a declining trend in global interest rates.

The purchase of domestic bonds by foreign investors is likely to help further strengthen the local currency as dollars will flow into the country as a result.