Rp 8.5t govt bonds sold amid inflation concerns

JAKARTA. The Indonesian government on Tuesday sold Rp 8.5 trillion (US$878 million) of government bonds, well above its indicative target of Rp 7 trillion, with yields of long-tenure securities rising slightly due to concerns over a weakening rupiah and surging inflation.

The four types of securities offered during the auction (one-year, five-year, 10-year and 15-year) attracted Rp 16.35 trillion of incoming bids, an indication that investors still held a positive perception toward Indonesia, despite all of the aforementioned concerns, said Robert Pakpahan, the head of the Finance Ministry’s debt management office.

“Total incoming bids remain high. This portrays [investors’] confidence toward Indonesia, the economy of which is considered more stable compared to other countries,” he said.

At Tuesday’s auction, weighted average yields for 5-year and 10-year debt paper rose slightly to 0.005 percent and 0.01 percent respectively, compared to the last auction on Jan. 15. Yields for one-year treasury bills declined by 0.001 percent.

“Investors are seeking higher yields as they still have concerns about the rupiah, as well as inflation in January, which may be higher than expected,” said Dini Agmivia Anggraeni, a bonds analyst from Mandiri Sekuritas.

The Central Statistics Agency (BPS) is slated to announce January’s inflation figures on Friday. Bank Indonesia (BI) Governor Darmin Nasution has estimated that inflation during the month might top 1.1 percent due to bad weather and floods, which drove up logistical costs.

Nevertheless, Dini said that the yield increase in government bonds was barely considerable and thus “should not become a concern”.

Investors generally still maintained positive views toward Indonesia, as evinced by the higher-than-targeted funds raised from Tuesday’s bonds issuance, she added.

Bank Danamon bonds analyst Dian Ayu Yustina said that positive sentiment in the bonds market was triggered partly by Indonesia’s robust investment figures, announced last week. Foreign direct investment (FDI) realization in Indonesia topped Rp 221 trillion throughout last year, jumping 26 percent compared to a year earlier.

“This [strong FDI growth] should lighten concerns over the balance of payment performance, as deficits in the current account will still be compensated by the flow of funds in the financial account,” Dian wrote in a research note released on Tuesday.

Indonesia plans to raise Rp 180.4 trillion through government securities to plug its budget deficit, set at 1.65 percent of its gross domestic product (GDP), according to the 2013 state budget.

Analysts, however, feared that the budget deficit would breach the initial threshold, forcing the government to issue more bonds.

The deficit could go as high as 3 percent of GDP as the weakening rupiah and rising global oil prices would drive up oil imports, analysts from the Singapore-based DBS Bank said in a research note released last week.

Since early this year, the rupiah has been hovering at around Rp 9,600 against the dollar, higher than the Rp 9,300 targeted by the government. (sat/ The Jakarta Post)