Daily Commentary (10-Aug): Still Solid Demand for Sukuk Auction

Total incoming bids in Tuesday’s sukuk bond auction remained solid at Rp51.7tn although slightly lower than in the previous auction at Rp56.7tn (vs. average YTD bids of Rp32.3tn–excluding GSO). This was slightly below our lower bid range forecast of Rp52tn-62tn. Short-end tenors still attracted the biggest demand, i.e., 6-mo SPNS and 2.9-yr PBS31, reaching Rp10.3tn and Rp12.1tn, respectively, or together, more than 43% of total bids. Meanwhile, the longer tenor PBS series also attracted bigger demand than in the previous auction. This may indicate that the types of investor bids during the auction might have varied, not only mostly coming from banks, but also institutional non-banks, such as pension fund and insurance companies.

Despite the relatively high incoming demand, the government issued only Rp11tn—lower than the initial target of Rp12tn make the average yield awarded was slightly lower than our forecast. The blended weighted government cost of fund increased to 5.82% (vs. 4.99% in the previous auction), but the weighted average tenor also increased significantly to 12.73 years (vs. 4.35 years in the previous auction).

The total non-competitive awarded was at Rp3.4tn or 30.9% of total issuances (vs. 27.8% in the previous auction). This indicates that Bank Indonesia’s purchase in the auction might be slightly lower than in the previous auction. We will know how much Bank Indonesia (BI) bought by looking at the DMO bond fund flow data on 13-Aug (sukuk auction settlement date). In the previous sukuk auction on 27-Jul, BI bought only Rp0.04tn or 5.1% of total issuances. YTD, BI’s bond purchase contribution (based on SKB-I) has reached Rp130.62tn (Rp88.8tn in conventional bonds and Rp41.9tn in sukuk) or 20.2% of the total bond issuances in the primary market through auctions. YTD, the government has already issued Rp883.7tn gross or 70.6% of new issuances target this year.

INDOGB yields still went up slightly on Tuesday, with foreign still reporting net sell, this time at Rp0.4tn, according to the CTP PLTE data. According to Bloomberg, the 5-yr FR86 benchmark series was trading at 101.43 (-0.06%) or yielded 5.15% (+1.3 bps), the 10-yr FR87 at 101.36 (-0.11%) or yielded 6.31% (+1.5 bps), the 15-yr FR88 at 99.27 (-0.2%) or yielded 6.33% (+2.1 bps), and the 20-yr FR83 at 104.58 (-0.33%) or yielded 7.05% (+3.2 bps). Regarding the 10-yr RoI USD global bond that will mature in Mar-2031, its price fell to 97.11 (-0.14%), yielding 2.19% (+1.6 bps), and the 5-yr CDS fell slightly to 76.75 (-0.34 bps).

In the latest DMO bond flow data as of 9-Aug (reflecting trading on 5-Aug), foreign ownership in government bonds fell slightly by Rp0.4tn to Rp977.21tn (still net inflow of Rp11.4tn MTD or +Rp3.3tn YTD). YTD, the biggest net buyer of government bonds (incl. sukuk) is onshore banks at Rp127tn, followed by BI at Rp118.1tn, insurance & pension fund at Rp85tn, retail investors at Rp67.3tn, and others at Rp72.1tn.

On Tuesday, the JCI continued flaling by 0.6% to 6,088.4 (+0.3% MTD or +1.8% YTD), and foreign reported net inflow slightly by Rp14.9bn (net inflow of Rp557.1bn MTD or +Rp18.3tn YTD). Meanwhile, Asian stock markets closed mostly higher, with the Nikkei and Hang Seng indices rising, each by 0.2% and 1.2% to 27,888.2 (+1.6% YTD) and 26,605.6 (-2.3% YTD). The rupiah also depreciated by 0.1% to Rp14,383/USD (appreciated by 0.5% MTD or depreciated by 2.4% YTD).

(Source: Mandiri Sekuritas)