Why everyone is all eyes on Indonesia's bond auction today
Will it be manageable?
According to Bank of America Merrill Lynch, focus today will likely be on Indonesia's bond auction, which will issue the following bonds- SPN Sep 2014 (reopen), FR69 April 2019 (reopen), FR70 March 2024 (reopen), FR71 March 2029 (reopen) and FR67 Feb 2044 (reopen).
Indonesia would successfully meet its Q3-2013 issuance target of IDR72.9tn if it is able to sell the targeted IDR8tn.
Indeed, we calculate that with 10 auctions left, including today's, and six of them for SPNs and FR bonds, the DMO would need to auction an average of IDR7trn per auction for SPNs/FR bonds. This should be relatively manageable, in our view.
Indonesia has sold IDR182.15tn of bonds year till date bringing its cumulative issuance to 62% of the estimated 2013 annual target of IDR295tn. This is derived from the all-inclusive issuance target of IDR331.78tn announced by the Debt Management Office and is consistent with a budget deficit of 2.4% of GDP.
Non-IDR securities issuance at 19% of total
The Non-IDR securities issuance consisting of the realized international bond issuance planned global sukuk issuance and planned domestic dollar bond issuance comes to IDR61.53tn or 19% of the gross annual target of for 2013.
New issuances worth IDR42.3tn announced for Q4
Indonesia's local debt market will likely gain activity in the coming weeks with several new issuances scheduled for Q4-2013. Specifically, IDR42.3tn (at current exchange rate) of fresh issuance has been announced across categories of bonds (see table 1).
Foreigners net buyers of Indonesian bonds in September
Along with the recent appreciation in the Rupiah in September, Indonesia's local currency government bond market too has benefited from some foreign buying interest this month.
Foreign entities boosted holdings by IDR 2.3tn in September. Bank Indonesia had hiked rates twice (first by 50bp and then by 25bp) in the three weeks preceding the Federal reserve meeting (18-20th September) to support the depreciating currency amid uncertain global factors.
Given that the Fed refrained from a QE taper for now foreign activity may increase further in the short run. Current foreign holding at 31% of the total outstanding bonds is far lower than the 35% seen in May 2013. Foreigners sold close to IDR20tn (USD1.7bn) on a net basis since mid-May when Fed tapering talk began.