The government will hold its last conventional bond auction on 23-Jun, with an issuance target of Rp36tn and a maximum issuance of Rp54tn, or the same as the previous auction. The auction will offer SPNs (1-, 3-, and 12-month tenors), alongside reopened fixed-rate series, including the 4.7-year FR109, 9.8-year FR108, 14.1-year FR106, 19.1-year FR107, 28.1-year FR102, and 38.1-year FR105. Based on our incoming bids model, the trend of weakening demand expectations persists, estimated at approximately Rp37tn (range: Rp32tn-42tn), compared to Rp46.7tn in the previous auction on 9-Jun. While demand is still expected to exceed the government’s issuance target, the margin of oversubscription is likely to remain limited.
Bond auction recap (9-Jun): The second-lowest incoming bids so far this year, in line with dropping foreign participation. Government bond auction demand weakened further on 9-Jun, with total incoming bids declining to Rp46.7tn from Rp57.3tn in the previous auction, well below the YTD average of Rp66.5tn. Although demand remained above the government’s issuance target of Rp36tn, this was the second-lowest auction demand recorded so far this year. Investors continued to favor the belly segment, with the 4.9-yr FR109 attracting Rp15.3tn of bids and the 10-yr FR108 receiving Rp8.4tn. Together, the two-benchmark series accounted for 50.8% of total bids, slightly higher than 50.1% in the previous auction. The decline in demand was mainly driven by longer-tenor bonds (>14 years), whose bids fell sharply to Rp12.4tn from Rp20.9tn previously, likely reflecting a more cautious stance after recent signals from Bank Indonesia and the government regarding efforts to raise yield attractiveness to support the rupiah. Meanwhile, demand for short-term SPNs rebounded to Rp10.5tn from Rp7.7tn.
Both onshore and offshore investors showed lower participation. Onshore bids fell 12.2% auction-to-auction to Rp39.7tn, while offshore bids dropped more sharply by 33.0% to Rp4.8tn, remaining below the YTD average of Rp7.8tn. As a result, foreign participation declined to 10.3% of total bids from 12.5% previously, recording below the YTD average of 11.5%. Foreign awarded bids also fell significantly to Rp2.2tn from Rp4.9tn in the previous auction, indicating weaker offshore appetite amid ongoing market uncertainty.
Bond auction results (9-Jun): Issuance was below target, with rising cost of funds and shortening tenors. The government issued only Rp26.4tn, which was below both its initial target and the Rp36.9tn awarded in the previous auction. This marked the smallest bond issuance so far this year. The weighted average cost of funds increased further to 7.31% from 6.73%, although the average tenor shortened to 10.7 years from 11.8 years previously. We continue to view sovereign supply risk as manageable, given the government’s front-loaded funding strategy. Year-to-date, the average issuance per biweekly auction has reached Rp49.5tn, above the initial target of Rp46tn, while the cumulative gross issuance has reached Rp858.7tn, equivalent to 54.8% of the FY2026 financing target. Assuming the fiscal deficit remains at 2.68% of GDP, we estimate the average auction target in 2H26 could decline to around Rp38.8tn. Funding needs could fall even further if the government reduces its ambitious below-the-line financing target of Rp203tn (vs. Rp86.3tn realized in 2025), increases the use of excess budget balance (SAL) beyond the budgeted Rp60.4tn (vs. Rp85.6tn utilized in 2025), or raises loan financing utilization above the current Rp32.7tn target (vs. Rp97tn realized in 2025).
Insurance companies and pension funds emerged as the largest group of buyers in the last bond auction. Participation was primarily driven by domestic investors. According to data from the Debt Management Office (DJPPR), we estimate that insurance companies and pension funds were the largest group of net buyers in the last conventional bond auction on 9-Jun, acquiring Rp13.3tn, representing almost 44% of the total issuance. Meanwhile, onshore banks were the second-largest group of buyers, absorbing Rp7.9tn, dropping from Rp14.4tn in the previous bond auction. Following behind them, there were Bank Indonesia, other investors, and mutual funds, which reported net purchases of Rp4.5tn, Rp3.3tn, and Rp1.5tn, respectively.
However, year-to-date, onshore banks have remained the dominant participants in conventional bond auctions, with cumulative net purchases totaling Rp178.4tn. This accounted for 44% of total bonds issued through auctions, highlighting the banking sector’s strong and consistent support to government debt issuance.
On the other hand, including activity in the secondary market, domestic investors continued to play a dominant role in absorbing government bonds. Insurance companies and pension funds remained the largest contributors with net purchases of Rp112.7tn, followed by other investors at Rp56tn and Bank Indonesia at Rp51.6tn. Retail investors and mutual funds also continued to post net buy during the period, reaching Rp16.4tn and Rp11tn, respectively. In contrast, onshore banks and foreign investors remained in net selling positions, recording cumulative net sells of -Rp12.5tn and -Rp8.1tn YTD, based on DMO settlement data as of 19-Jun-2026.
Auction preview: Expectations of weaker demand continue to prevail. We estimate the incoming bids in today s bond auction to continue slowing and decrease to Rp37tn (within a range of Rp32tn-42tn). Nonetheless, several positive factors support today s auction: (1) reinvestment flows should remain favorable, with approximately Rp3.6tn of bond series, alongside around Rp2.1tn of bond coupon payments (incl. in USD denominations); (2) investors may be profit-taking and giving room for reinvestment, in line with the declining bond yields by 21 bps on average compared with the last bond auction.
On the other hand, external headwinds will remain a challenge, particularly the elevated US Treasury yields, uncertainty surrounding the Federal Reserve’s policy outlook, and heightened geopolitical risks, which have collectively reduced investor appetite for emerging-market fixed-income assets, thus might trigger less foreign participation during today auction.
We forecast the fair yields for the bond series to be auctioned today as follows: 6.95% (range: 6.90-7.00%) for the 1-mo SPN, 7.05% (range: 7.00-7.10%) for the 3-mo SPN, 7.25% (range: 7.20-7.30%) for the 1-yr SPN, 7.15% (range: 7.10-7.20%) for the 4.7-yr FR109, 7.15% (range: 7.10-7.20%) for the 9.8-yr FR108, 7.22% (range: 7.17-7.27%) for the 14.1-yr FR106, 7.23% (range: 7.18-7.28%) for the 19.1-yr FR107, 7.23% (range: 7.18-7.28%) for the 28.1-yr FR102, and 7.25% (range: 7.20-7.30%) for the 38.1-yr FR105.
