The government will hold its first regular sukuk auction for 3Q-2025 on 8-Jul, targeting Rp9tn in issuance slightly above the Rp8tn target set in the previous auction. The auction will offer two SPNS series (6-month and 9-month tenors) and reopen project-based sukuk, i.e., PBS003 (1.5-yr), PBS030 (3-yr), PBSG001 (4.2-yr), PBS034 (13.9-yr), and PBS038 (24.4-yr). Our model indicates strong demand, with the expected total incoming bids in the range of Rp43tn 53tn potentially setting a new record high for sukuk auctions.
3Q25 bond auction program: higher gross target but still manageable supply outlook. The government has set a total bond issuance target of Rp252tn through regular auctions in 3Q25, marking an increase from Rp190tn in 2Q25 and Rp228tn in 1Q25. The latest figure includes both conventional and sukuk auctions, with seven auctions scheduled for each in the quarter. This implies an average target of Rp36tn per biweekly auction compared to the realized averages of Rp39.3tn in 2Q25 and Rp38.8tn in 1Q25. Bond maturities in 3Q25 are projected at Rp236.8tn, resulting in a net bond issuance of only Rp15.2tn (vs. -Rp42.8tn in 2Q25 and Rp108.9tn in 1Q25). Furthermore, investor appetite for Indonesian government bonds has continued to strengthen. During 2Q25, the average incoming bid per auction was Rp114tn, or 2.9x the government’s initial target, up from Rp85.9tn or 2.2x in 1Q25. This supports our view that the supply-demand balance for government bonds in 3Q25 remains healthy.
Another record high in the year-to-date demand. The latest sukuk auction on 24-Jun recorded the highest incoming bids so far in 2025, reaching Rp39.7tn well above the government s Rp8tn target and exceeding the Rp36.9tn in the prior auction (10-Jun). The result also surpassed our projected bid range of Rp31tn 36tn, reflecting continued strong investor interest. Demand remained heavily concentrated in front-end benchmark series, i.e., PBS030 (3.1-yr) at Rp14.4tn (vs. Rp13.7tn prior; YTD avg.: Rp6.8tn) and PBS003 (1.6-yr) at Rp9.8tn (vs. Rp8.7tn prior; YTD avg.: Rp7.4tn). Together, they contributed >61% of the total bids. Other notable demand figures came from PBS038 (24.5-yr) at Rp6tn (15.1% of total bids), 9-mo SPNS at Rp5.1tn (12.8%), PBS039 (16.1-yr) at Rp2.7tn (6.7%), 6-mo SPNS at Rp1.2tn (2.9%), and PBS034 (14-yr) at Rp0.6tn (1.4%).
Above-target issuance, but at higher cost and longer duration. The government has upsized the sukuk issuance to Rp12tn, surpassing both the Rp8tn target and the Rp10tn awarded in the prior auction (10-Jun). However, this came at a slightly higher cost, as the government has significantly lengthened the awarded maturity. The blended weighted cost of funds rose to 6.59% (vs. 6.36% in the previous sukuk auction on 10-Jun), and the average tenor extended sharply to 11.44 years (vs. 4.15 years in the previous sukuk auction on 10-Jun). As of this auction, the YTD gross government bond issuance stands at Rp704.9tn, or 59.1% of our full-year 2025 forecast, based on a budget deficit assumption of -2.60% of GDP.
Onshore banks remain dominant despite slower buying. Onshore banks were still the largest participant type in the 24-Jun sukuk auction, though their net purchase moderated to Rp5.5tn down from Rp7.8tn in the previous auction (10-Jun) and below the YTD average of Rp6.1tn per auction. They were followed by pension and insurance fund companies and foreign investors, which reported net buys of +Rp3.5tn and +Rp1.6tn, respectively (vs. +Rp0.1tn and +Rp0.2tn in the previous sukuk auction). Despite the decline, onshore banks continued to lead the primary market absorption. YTD, onshore banks have been leading the sukuk absorption with a net buy of Rp67.1tn or 76.2% of the total sukuk issuance through auction scheme. They were followed by Bank Indonesia and other investors, which reported net buys of +Rp15.6tn and +Rp13.6tn, respectively.
Demand expected to improve, driven by ample liquidity and reinvestment flows. We expect the investor demand to strengthen in today s sukuk auction, with the projected total incoming bids in the range of Rp43tn 53tn, up from Rp39.7tn in the previous auction on 24-Jun. Several positive factors are driving this outlook: (1) Ample banking system liquidity, currently estimated at Rp143.2tn, significantly higher than the Rp72.1tn at the last sukuk auction. (2) Reinvestment support, as Rp14.6tn in government bonds is set to mature this week (including both IDR- and JPY-denominated bonds), along with Rp6.1tn in coupon payments. (3) Softening SRBI yields and declining outstanding balances, suggesting a shift in short-term money market flows back into the government bonds. The only potential drag on today s demand could be the notably lower bond yields compared to the previous auction, and this may dampen investor appetite particularly among yield-sensitive participants.
The rupiah yield curve has bullishly flattened ahead of the auction. Compared to the previous sukuk auction on 23-Jun, the rupiah yield curve has bullishly flattened with the 2-yr yield decreasing by 16 bps to 6.04%, and the 10-yr yield decreasing more by 24 bps to 6.58%. We forecast the fair yields for the bond series to be auctioned today as follows: 5.74% (range: 5.69-5.79%) for 6-mo SPNS, 5.79% (range: 5.74-5.84%) for 9-mo SPNS, 6.10% (range: 6.05-6.15%) for 1.5-yr PBS003, 6.17% (range: 6.12-6.22%) for 3-yr PBS030, 6.21% (range: 6.16-6.26%) for 4.2-yr PBSG001, 6.77% (range: 6.72-6.82%) for 13.9-yr PBS034, and 6.95% (range: 6.90-7.00%) for 24.4-yr PBS038.
