Auction demand faces its first test following the sharp INDOGB repricing following Bank Indonesia’s weekend communication that policymakers are seeking to enhance yield attractiveness to support the rupiah. The government will hold its conventional bond auction on 9-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 4.8-year FR109, 9.9-year FR108, 14.2-year FR106, 19.2-year FR107, 28.1-year FR102, and 38.1-year FR105. Based on our incoming bids model, we expect auction demand to continue to increase to around Rp65tn, within a range of Rp60tn-70tn, compared to Rp57.3tn in the previous auction on 26-May.
Bond auction recap (26-May): Auction demand rebounds on stronger offshore participation. Government bond auction demand rebounded on 26-May as expected, with total incoming bids rising to Rp57.3tn from Rp51.4tn in the previous auction, although still below the YTD average of Rp68.5tn. Demand also remained comfortably above the government s issuance target of Rp36tn. Bids continued to concentrate in the belly segment, with the 4.9-yr FR109 attracting Rp20.2tn and the 10-yr FR108 receiving Rp8.5tn. Combined, both series accounted for 50.1% of the total incoming bids, higher than 43.7% in the previous auction. Demand for longer-tenor bonds (>14 years) also improved to Rp20.9tn from Rp18.8tn previously, with SPN demand moderating to Rp7.7tn from Rp10.1tn.
Further, offshore participation rebounded to Rp7.2tn (+42.2% from the previous auction), although still below the YTD average of Rp8.1tn. The recovery in foreign demand was likely supported by improving regional sentiment following progress in US-Iran negotiations, after President Trump signaled a two-phase framework, starting with the reopening of the Strait of Hormuz. Awarded foreign bids also rose significantly to Rp4.9tn from only Rp2.4tn in the previous auction and above the YTD average of Rp4.1tn, indicating foreign investors remained aggressive in bidding at attractive yield levels.
Bond auction results (26-May): Issuance was above target, with increasing cost of funds and shortening tenors. The government issued Rp36.9tn, above both the initial target and the previous auction issuance of Rp30.3tn. Meanwhile, the weighted average cost of funds increased further to 6.73% from 6.55%, although the average tenor shortened to 11.8 years from 14.8 years previously. Year-to-date, the total gross bond issuance has reached Rp822.8tn, equivalent to 52.5% of the FY-2026 issuance target.
Investor breakdown: domestic investors remained the key drivers of demand in the primary bond market. Participation was largely concentrated among domestic banking institutions, as well as insurance companies and pension funds. Based on data from the Debt Management Office (DJPPR), we estimate that domestic banks emerged as the largest net buyers in the conventional bond auction held on 26-May, absorbing Rp14.4tn or >39% of total issuance. Insurance companies and pension funds followed closely, purchasing Rp10tn worth of bonds, equivalent to 27.2% of the issuance, while foreign investors absorbed Rp4.8tn (12.9%).
Meanwhile, Bank Indonesia contributed Rp3.6tn (9.9%) of total issuance, followed by mutual funds at Rp3.2tn (8.7%) and other investors at Rp0.8tn (2.3%). Thus, on a year-to-date basis, domestic banks have continued to be the key players in conventional bond auctions, with cumulative net purchases reaching Rp170.5tn. This represented 45.4% of the total bonds issued through auction mechanisms, underscoring the strong and sustained support from the domestic banking sector.
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 Rp96.5tn, followed by Bank Indonesia at Rp48.6tn and other investors at Rp48tn. Retail investors and mutual funds also continued to post net buy during the period, reaching Rp14.5tn and Rp11tn, respectively. In contrast, onshore banks and foreign investors remained in net selling positions, recording cumulative net sells of -Rp7.6tn and -Rp6.4tn YTD, based on DMO settlement data as of 4-Jun-2026.
Bond auction outlook: Is the recent rise in demand expected to persist? We expect the demand in today s conventional bond auction to continue to increase, with total bids estimated at around Rp65tn, within a range of Rp60tn-70tn, compared with Rp57.3tn at the last conventional bond auction on 26-May. The expected improvement is supported by several factors: First, Bank Indonesia’s liquidity projections remain relatively ample, providing a supportive backdrop for primary market demand. Second, reinvestment flows should remain favorable, with around Rp4tn of SPNs maturing this week, alongside approximately Rp2.9tn of bond coupon payments (incl. in USD and JPY denominations). Third, in the latest SRBI auction, the total incoming bids still improved, with rising cost of funds. It showed that investors enthusiasm remained high. Thus, we expect it could also be a positive sign for the bond market. Lastly, fourth, amid the significant decline in the equity market over the past few days, investors have increasingly shifted their investment allocations toward the bond market in search of greater stability and lower risk.
We forecast the fair yields for the bond series to be auctioned today as follows: 6.85% (range: 6.80-6.90%) for the 1-mo SPN, 7.00% (range: 6.95-7.05%) for the 3-mo SPN, 7.30% (range: 7.25-7.35%) for the 1-yr SPN, 7.35% (range: 7.30-7.40%) for the 4.8-yr FR109, 7.45% (range: 7.40-7.50%) for the 9.9-yr FR108, 7.45% (range: 7.40-7.50%) for the 14.2-yr FR106, 7.45% (range: 7.40-7.50%) for the 19.2-yr FR107, 7.46% (range: 7.41-7.51%) for the 28.1-yr FR102, and 7.48% (range: 7.43-7.53%) for the 38.1-yr FR105.
