The government will hold another regular sukuk auction on 11-Mar, targeting to issue Rp10tn or the same as in the previous sukuk auction. The government will offer 6-mo SPNS series (reopening), 9-mo SPNS series (new issuance), 1.9-yr PBS003 (reopening), 3.3-yr PBS030 (reopening), 14.3-yr PBS034 (reopening), 16.3-yr PBS039 (reopening), and 24.8-yr PBS038 (reopening). With the ongoing bond rally as foreign investors come back due to lowering US Treasury yield and DXY index, we estimate that the demand might still be solid, ranging Rp23tn-33tn (vs. Rp19.9tn in the previous sukuk auction).
Falling incoming bids but higher sukuk issuance. In the last regular sukuk auction on 25-Feb, the total incoming bids dropped by 34.2% to Rp19.9tn (vs. Rp10tn initial target, Rp30.3tn in the previous sukuk auction, and Rp21.2tn average bid per sukuk auction YTD). This was far below our total bids forecast range of Rp30tn-40tn. Unlike the previous sukuk auction, the most attractive series during the auction was the 9-mo SPNS, which recorded Rp5.9tn (vs. Rp4.9tn bids in the previous sukuk auction), contributing 29.8% of the total incoming bids. Following this, the 1.9-yr PBS003, 24.8-yr PBS038, 4.6-yr PBSG001, and 3.4-yr PBS030 series had bids amounting to Rp4.5tn, Rp2.9tn, Rp2.6tn, and Rp2.3tn, respectively.
Even though the total incoming bids dropped, the government issued Rp12tn, or higher than its initial target and the previous sukuk auction issuance of Rp10tn. Meanwhile, the blended weighted government cost of fund decreased slightly to 6.50% (vs. 6.77% cost of fund in the previous sukuk auction) as the yields lowered compared to the previous auction, and the government issued more short-to-mid-term series, with the weighted average tenor decreasing to 7.51 years (vs. 10.30 years in the previous auction). Thus, YTD, the government has issued Rp362tn-gross, or 30.3% of our full-year 2025 bond financing target, assuming the budget deficit is -2.53% of GDP.
In the latest sukuk auction, >61% were awarded to onshore banks. According to DMOs sukuk flows data, in the last sukuk auction on 25-Feb, we estimate that onshore banks were (again) the biggest net buyer of sukuk, reaching an awarded amount of Rp7.3tn or >61% of total sukuk issuances. They were followed by Bank Indonesia and other investors, which reported net awarded figures of Rp3tn and Rp1.1tn, respectively. Furthermore, year-to-date, onshore banks have been recording the biggest sukuk awarded figure in the primary market, totaling +Rp24.7tn or 58.7% of the total sukuk issuance through auction. They were followed by Bank Indonesia and insurance & pension funds, which were awarded +Rp7.5tn and Rp4.6tn, or 17.9% and 10.9% of the total sukuk issuance through auction, respectively.
Including the secondary market and maturing sukuk, onshore banks also still dominated, as they were the biggest net buyer, posting a net buy of +Rp10.8tn YTD, followed by Bank Indonesia (+Rp5.1tn), insurance & pension funds (+Rp4.4tn), retail investors (+Rp3.6tn), other investors (+Rp4.4tn), and mutual funds (+Rp2.2tn). Meanwhile, foreign investors reported a net sell of -Rp0.2tn, according to the latest DMO data based on settlement date of 7-Mar.
Bond rally might support sukuk auction demand. With the ongoing bond rally as foreign investors come back due to lower US Treasury yield and DXY index, we estimate that the demand might still be solid, ranging Rp23tn-33tn. Another positive sentiment comes from relatively ample liquidity, estimated at ~Rp96.3tn (vs. Rp71.2tn in the previous sukuk auction on 25-Feb), and there will be Rp21.8tn of maturing sukuk/bond series this week, plus there is still coupon payments, totaling Rp33tn.
We forecast the fair yields for the bond series to be auctioned today as follows: 6.05% (range: 6.00-6.10%) for 6-mo SPNS, 6.15% (range: 6.10-6.20%) for 9-mo SPNS, 6.55% (range: 6.50-6.60%) for 1.8-yr PBS003, 6.56% (range: 6.51-6.61%) for 3.3-yr PBS030, 6.90% (range: 6.85-6.95%) for 14.3-yr PBS034, 6.95% (range: 6.90-7.00%) for 16.3-yr PBS039, and 7.03% (range: 6.98-7.08%) for 24.8-yr PBS038.
Handy Yunianto
Mandiri Sekuritas Research Team
