Demand Likely to Soften Further
The government will conduct another sukuk auction today (25-Nov) with an issuance target of Rp7tn, unchanged from the previous auction. The instruments offered include the 1-mo, 6-mo, and 9-mo SPNS, along with reopened series PBS030 (2.6-yr), PBS040 (5-yr), PBSG002 (7.9-yr), PBS034 (13.6-yr), and PBS038 (24.1-yr). We expect demand to soften further, with the total incoming bids projected in the Rp32tn 42tn range, which would be lower than in recent auctions but still broadly supported by reinvestment flows and ample rupiah system liquidity. Despite a moderating appetite, particularly from offshore, today s auction might still draw healthy interest within our forecast range.
Sukuk auction preview (11-Nov): weaker bids but still within expectations. Investor demand in the 11-Nov sukuk auction moderated but remained solid, with the total incoming bids reaching Rp43.4tn, down from Rp51.4tn in the previous 28-Oct auction. Despite the decline, the result still landed within our projected Rp43tn 53tn range and stayed above the year-to-date average, indicating that the overall appetite for sukuk remains healthy. The 13.6-year PBS034 once again dominated demand, collecting Rp8.5tn in bids (vs. Rp11.8tn prior; YTD avg.: Rp4.0tn), or 19.6% of the total affirming its position as the most preferred long-tenor sukuk. Other well-bid series included the 9-mo SPNS (Rp7.5tn; 17.3%), 1-mo SPNS (Rp6.1tn; 13.9%), 5-yr PBS040 (Rp5.9tn; 13.5%), PBS030 (Rp5.2tn; 11.9%), PBS038 (Rp4.8tn; 11.1%), PBS039 (Rp4.1tn; 9.5%), and 3-mo SPNS (Rp1.4tn; 3.2%). While demand softened across most tenors, the breadth of bidding across series showed that investor interest remained well-distributed, supported by ample onshore liquidity and stable sukuk market conditions.
Sukuk auction results (11-Nov): higher issuance, higher funding costs, but shorter tenor. The government raised Rp10tn in the 11-Nov sukuk auction unchanged from the previous auction and well above the Rp7tn target, reflecting continued financing flexibility. However, funding costs edged higher, with the weighted average cost of funds rising to 5.58% (vs. 5.40% previously) and the average awarded tenor shortened to 8.24 years (vs. 8.73 years). Year-to-date, the total gross issuance has reached Rp1,286.6tn, or 93.8% of our full-year projection (based on a fiscal deficit assumption of -2.78% of GDP). Overall, we assess bond supply risks as manageable for the remainder of 2025, supported by strong onshore liquidity, steady demand, and the government s earlier pre-funding strategy.
Onshore banks remain the dominant anchor in sukuk demand. Onshore banks continued to serve as the backbone of sukuk demand in the latest 28-Oct auction, absorbing nearly 69% of the total awarded sukuk. They booked a net buy of Rp6.9tn (vs. Rp6.3tn in the prior auction and a Rp5.8tn YTD average per auction), reaffirming their role as the primary liquidity provider in the primary market. Other investors including hajj funds ranked second with a steady Rp1.3tn net buy, followed by Bank Indonesia and insurance & pension funds, each recording Rp0.8tn of net purchases. Year-to-date, onshore banks have consistently dominated sukuk issuance, accumulating Rp120.8tn, or nearly 55% of the total primary sukuk awarded. They are followed by other investors (Rp26.2tn; 11.9%), Bank Indonesia (Rp25.9tn; 11.8%), insurance & pension funds (Rp25.1tn; 11.4%), foreign investors (Rp11.8tn; 5.4%), mutual funds (Rp8.5tn; 3.8%), and retail investors (Rp1.6tn; 0.7%).
In the broader market including secondary flows mutual funds emerged as the largest net buyer YTD, accumulating Rp12.2tn (as of 21-Nov). They were followed by other investors (+Rp11.6tn), onshore banks (+Rp7.3tn), and foreign investors (+Rp0.4tn). Meanwhile, insurance & pension funds (-Rp12.7tn), retail investors (-Rp1.3tn), and Bank Indonesia (-Rp0.1tn) registered sukuk net sells, largely reflecting maturing sukuk holdings that have yet to be reinvested.
Sukuk auction preview (25-Nov): demand likely to soften further. We expect the investor demand in today s sukuk auction to ease compared to earlier rounds, with incoming bids likely to fall into the Rp32tn 42tn range down from Rp43.4tn in the 11-Nov auction and slightly below the YTD average of Rp36.4tn per auction. The softer outlook is consistent with the trend seen in the conventional bond auction on 18-Nov, where the total bids moderated to Rp78.9tn, driven primarily by weaker onshore participation despite a modest rebound in foreign interest. Even so, several factors should continue to support sukuk demand: 1) The banking-system liquidity remains ample, with Bank Indonesia projecting an excess liquidity of Rp188.9tn as of 24-Nov (vs. Rp265.1tn during the previous sukuk auction). 2) Near-term reinvestment flows should also provide a cushion, with Rp3.9tn of maturing SPNS and Rp2.3tn of coupon payments this week including USD- and JPY-denominated series creating additional liquidity for government securities. Overall, while the demand is likely to moderate from recent highs, reinvestment flows and a still-healthy rupiah liquidity should keep the interest in today s sukuk auction relatively stable and within our projected range.
The rupiah yield curve is shifting up slightly ahead of the sukuk auction compared to the previous auction. The 2-yr yield edged up by 5 bps to 4.89%, while the 10-yr yield edged up by 4 bps to 6.22%. We forecast the fair yields for the bond series to be auctioned today (25-Nov) as follows: 4.55% (range: 4.50-4.60%) for the 1-mo SPNS, 4.60% (range: 4.55-4.65%) for the 6-mo SPNS, 4.65% (range: 4.60-4.70%) for the 9-mo SPNS, 5.08% (range: 5.03-5.13%) for the 2.6-yr PBS030, 5.42% (range: 5.37-5.47%) for the 5-yr PBS040, 6.05% (range: 6.00-6.10%) for 7.9-yr PBSG002, 6.32% (range: 6.27-6.37%) for the 13.6-yr PBS034, and 6.70% (range: 6.65-6.75%) for the 24.1-yr PBS038.
