The government will hold its first conventional bond auction for 3Q-2025 on 1-Jul, targeting Rp27tn, with a maximum issuance of up to Rp40.5tn. This is slightly higher than the previous auction target of Rp26tn. The government will offer two SPN series (3-mo and 1-yr tenors) and reopen six fixed-rate bond series (5-yr FR0104, 10-yr FR0103, 15.1-yr FR106, 20.1-yr FR107, 29-yr FR102, and 39-yr FR0105). Based on our auction model, the incoming bids are projected in the range of Rp79tn–89tn, indicating potentially stronger demand than in the previous round.

Rebounding demand amid weakening offshore participation. The government bond auction on 17-Jun-2025 saw a strong rebound in demand, with the total incoming bids reaching Rp81tn, significantly above the Rp26tn target and higher than both the Rp77.2tn in the 3-Jun auction and the Rp73.6tn YTD average. The 10.1-yr FR103 emerged as the most actively bid series, drawing Rp32.1tn in bids—up from Rp27tn previously and well above its Rp20.2tn YTD average—and accounting for nearly 40% of the total bids. It was followed by the 5.1-yr FR104 and 15.2-yr FR106 series, which attracted bids worth Rp20.2tn and Rp13.6tn (vs. Rp28.9tn and Rp6.7tn bids in the previous bond auction) or contributed 25% and 16.8% of the total incoming bids, respectively. Investor-wise, onshore investors continued to dominate, submitting Rp70.2tn in bids (86.6%), up from Rp61.7tn on 3-Jun. However, offshore participation declined by 30.1% to Rp10.8tn (vs. Rp15.5tn previously). Furthermore, the foreign-awarded-to-bids ratio fell to 18.2%, which was below the previous 23% and well under the 36.8% YTD average.

Higher issuance with slightly lower cost and longer tenor preference. The government raised Rp30tn in the 17-Jun-2025 bond auction, exceeding both the initial target of Rp26tn and the previous issuance of Rp28tn on 3-Jun. The blended weighted cost of funds declined slightly to 6.72% (vs. 6.76% previously), while the average issuance tenor rose to 12.56 years (vs. 12.41 years previously), indicating a sustained investor appetite for longer-duration instruments. YTD, the government has issued a total of Rp672.9tn gross, reaching >56.4% of our full-year 2025 bond issuance target, based on a -2.60% of GDP budget deficit assumption

Onshore banks continue to dominate the primary market demand. Based on the post-auction bond fund flow data, onshore banks were still the largest type of net buyer in the 17-Jun-2025 auction, with their allocation rising to Rp15.3tn, up from Rp12.2tn in the 3-Jun auction and above the YTD average of Rp11.8tn per auction. This represented 50.9% of the total issuance. The next biggest types of buyers were insurance & pension funds and other investors, which were awarded Rp5.4tn and Rp3.2tn, respectively. Thus, year-to-date, onshore banks have been the biggest net buyer, totaling Rp130.1tn (or 41.7% of total issuances YTD-2025). Behind them, foreign investors and insurance & pension funds reported net buys of Rp71.6tn and Rp45.2tn or 22.9% and 14.5% of total issuances YTD. Meanwhile, ”other” investors, Bank Indonesia, mutual funds, and retail investors bought 10.2%, 8.6%, 1.3%, and 0.7% of the total issuances YTD 2025.

However, including the non-auction primary market, the secondary market, and maturing bonds, Bank Indonesia has been the biggest net buyer of conventional bonds, totaling Rp94.5tn YTD. It is followed by insurance & pension funds and foreign investors, with net buys of Rp42.6tn and Rp35.2tn YTD, respectively. Meanwhile, other investors and mutual funds have been the biggest types of net sellers of conventional bond series, reaching -Rp7.4tn and -Rp3tn YTD, respectively, according to the DMO bond flow data with settlement date of 26-Jun.

Robust demand expected amid continued INDOGB rally. We expect strong demand in the upcoming 1-Jul government bond auction, with incoming bids projected to reach ca. Rp85tn, within the range of Rp80tn–90tn. This outlook is supported by several key factors: 1) Stable banking liquidity. The banking system’s liquidity remains supportive at Rp72.1tn, only slightly below the level during the previous auction at Rp74.3tn. 2) Reinvestment potential after profit-taking, with the average bond yield declining by ~5 bps since the last auction. Some investors may choose to take profits and reinvest in the upcoming issuance. Lastly, 3) steady foreign participation. We expect foreign demand to stay solid, supported by the rupiah’s recent appreciation against the USD, which reflected the dollar’s global weakening ahead of the auction.

The rupiah yield curve has bullishly steepened. Compared to the previous conventional bond auction on 17-Jun, the rupiah yield curve has bullishly flattened: the 2-yr yield decreased more by 15 bps to 6.04%, and the 10-yr yield decreased less by 10 bps to 6.63%. We forecast the fair yields of the bond series to be auctioned today as follows: 5.90% (range: 5.85-5.95%) for 3-mo SPN, 5.95% (range: 5.90-6.00%) for 1-yr SPN, 6.30% (range: 6.25-6.35%) for 5-yr FR0104, 6.60% (range: 6.55-6.65%) for 10-yr FR0103, 6.92% (range: 6.87-6.97%) for 15.1-yr FR106, 6.99% (range: 6.94-7.04%) for 20.1-yr FR107, 7.00% (range: 6.95-7.05%) for 29-yr FR102, and 7.08% (range: 7.03-7.13%) for 39-yr FR0105.