The government will conduct a conventional bond auction on 18-Nov, targeting Rp23tn (maximum: Rp34.5tn), the same as in the previous auction. The offer includes three SPN series (1-mo, 3-mo, and 1-yr SPNs) and six reopened FR series (5.4-yr FR109, 10.5-yr FR0108, 14.8-yr FR106, 19.8-yr FR107, 28.7-yr FR102, and 38.7-yr FR0105). Foreign demand is expected to remain soft as risk-off sentiment persists, though abundant onshore liquidity should continue to anchor domestic bidding interest. Based on our model, we project incoming bids to stabilize at ca. Rp83tn (range: Rp78tn 88tn), slightly below the Rp87.5tn received in the 4-Nov auction.
Softening demand amid foreign pullback; onshore investors remained as anchors. Demand softened in the 4-Nov conventional bond auction, broadly in line with expectations and driven mainly by weaker foreign participation. The total incoming bids fell by 25.5% to Rp87.5tn (vs. Rp117.5tn on 21-Oct; YTD avg.: Rp92.6tn), matching our projection range of Rp85tn 95tn. Foreign bids declined to Rp7.1tn (8.1% of total) from Rp11tn previously (9.4%) and were well below the YTD average of Rp16.9tn (18.4%), which was the second-lowest foreign participation since 3-Jan (Rp3.9tn). Domestic bids moderated to Rp80.4tn but were still slightly higher than the YTD average of Rp75.7tn. Demand was led by the 10.4-yr FR108 (Rp23.7tn; 37.2%), followed by the 5.4-yr FR109 (Rp20.2tn) and 14.8-yr FR106 (Rp17.7tn). Interest in long-tenor series declined, reflecting a mild rotation toward the short-to-belly sector.
Above-target issuance, higher cost of funds, and longer tenors. The government continued to utilize its financing flexibility (supported by SAL buffers, pre-funding, and front-loading) and was still opportunistic as it maintained issuance at Rp28tn, which was above the Rp23tn target and unchanged from the prior auction. The weighted average cost of funds rose to 5.61% (vs. 5.45% prior; YTD avg.: 6.55%), while the average tenor extended to 14.4 years (vs. 12.9 years prior). Year-to-date, the gross issuance has reached Rp1,224.3tn, or 89.2% of our full-year target (deficit: -2.78% of GDP).
Onshore banks led participation; foreign investors were still net sellers YTD. Onshore banks remained the dominant bidders in the 4-Nov auction with a net buy of Rp15.8tn (vs. Rp13.3tn on 21-Oct; YTD avg.: Rp12.8tn). Insurance & pension funds followed with Rp7.3tn (vs. Rp7.8tn prior; YTD avg.: Rp5tn). Year-to-date, in the primary market, onshore banks have accumulated Rp269tn of net buys (44% of auctioned bonds), ahead of insurance & pension funds (+Rp104.3tn) and foreign investors (+Rp103.2tn).
Including secondary flows and maturities, Bank Indonesia remains the largest buyer of INDOGB YTD (+Rp145.3tn), followed by onshore banks (+Rp144.8tn) and insurance & pension funds (+Rp118.1tn). Foreign investors remained the only net sellers, with -Rp6.5tn in conventional bonds (DMO data, 12-Nov).
Demand outlook: stable but still onshore-driven. The risk-off sentiment has risen amid escalating Japan China tensions, following Beijing s advisory urging Chinese citizens to reconsider travel and study in Japan. The uncertainty has pressured risk assets globally. At the same time, markets await clarity on US data releases post-shutdown, with the White House noting that October s jobs and inflation data may never be published, further supporting safe-haven flows. However, there are still some positive factors that may support demand for the auctions: 1) Ample banking system liquidity, standing at Rp182.6tn as of 17-Nov (vs. Rp236.4tn a day before the 4-Nov auction). 2) There is Rp8.75tn of maturing bond series this week, plus there is coupon payment totaling Rp377bn. However, the steady weighted-average yields in the latest SRBI auction may cap bidding enthusiasm today. Our incoming bids model projects Rp83tn in total bids (range: Rp78tn 88tn), slightly below the Rp87.5tn received in the 4-Nov auction.
Compared to the previous conventional bond auction on 4-Nov, the rupiah yield has bullishly steepened, as the 2-yr yield decreased more by 7 bps to 4.84%, while the 10-yr yield edged down by 3 bps to 6.14%. We forecast the fair yields of the bond series to be auctioned today (18-Nov) as follows: 4.50% (range: 4.45-4.55%) for 1-mo SPN, 4.55% (range: 4.50-4.60%) for the 3-mo SPN, 4.65% (range: 4.60-4.70%) for the 1-yr SPN, 5.40% (range: 5.35-5.45%) for the 5.3-yr FR0109, 6.05% (range: 6.00-6.10%) for the 10.4-yr FR0108, 6.35% (range: 6.30-6.40%) for the 14.7-yr FR106, 6.40% (range: 6.44-6.54%) for the 19.7-yr FR107, 6.70% (range: 6.65-6.75%) for the 28.7-yr FR102, and 6.77% (range: 6.72-6.82%) for the 38.7-yr FR0105.
