Government Bond Auctions Consistently Fall Short of Targets

In the Government Bond (SUN) auction held on May 8, 2018, the government decided not to accept any of the bids submitted by investors. Despite an indicative target of Rp 17 trillion and bids totaling Rp 7.18 trillion, none were accepted. In the four most recent auctions, for both SUNs and Sukuk (Syariah State Securities/SBSN), winning bids have consistently fallen below the indicative target.

High yield demands from auction participants prevented the government from raising funds from the public. For example, the FR0063 bond, maturing in 2023, offered a coupon rate of 5.625%, but the highest yield bid reached 7.7%. Similarly, the FR0065 bond, maturing in 2033, offered a coupon of 6.625%, yet the highest yield demand reached 7.6%. Finally, the FR0075 bond, maturing in 2038, offered a coupon of 7.5%, but the highest investor yield demand reached 7.95%.

Speculation that the US Federal Reserve (The Fed) would raise its benchmark interest rate three more times by the end of the year led to the appreciation of the US dollar against major world currencies. This resulted in the weakening of several Asian currencies, including the Indonesian Rupiah, against the US dollar. The weakening Rupiah and the outflow of foreign funds from the domestic financial market prompted investors to demand higher yields in both SUN and Sukuk auctions.