The government is set to conduct a regular sukuk auction today with a target issuance of Rp9tn, unchanged from the previous auction. The offering includes two SPNS series—6-month tenor (reopening) and 9-month tenor (new issuance)—alongside five reopening project-based sukuks: PBS003 (1.5-yr), PBS030 (3-yr), PBSG001 (4.1-yr), PBS034 (13.9-yr), and PBS038 (24.4-yr). Based on our model, incoming bids are projected to remain solid at ca. Rp43tn, within a range of Rp38tn–48tn, though slightly below the previous record high.

New record high for 2025. Investor appetite remained strong in the 22-Jul sukuk auction, with the total incoming bids hitting Rp50.3tn—well above the Rp9tn target and the prior Rp40.8tn in the 8-Jul auction. This marks the highest bid volume in a sukuk auction so far in 2025. Demand was still concentrated in the 3-yr PBS030 and 1.5-yr PBS003 benchmarks, which attracted Rp14.3tn and Rp13.9tn in bids, respectively—well above their YTD average bid levels of ca. Rp8tn. Together, these two series contributed ~56% of the total bids. Solid interest was also seen in the 9-mo SPNS (Rp7.9tn) and 24.4-yr PBS038 (Rp7.8tn).

Awarded amount unchanged, cost of funds slightly higher. The government awarded Rp12tn in the 22-Jul sukuk auction, unchanged from the previous auction and above the Rp9tn target. The weighted average cost of funds rose slightly to 6.32% (vs. 6.26% previously), in line with a longer average tenor of 11.75 years (up from 7.07 years). Including the recent global sukuk issuances, the YTD gross bond issuance now amounts to Rp827.1tn, or 66.6% of our full-year target (based on a 2.8% of GDP budget deficit).

Based on our calculation, onshore banks maintained their dominance in the primary sukuk market during the 22-Jul auction, securing Rp7.5tn in net awards (vs. Rp6.6tn in the previous auction), or 62.7% of the total issuance. Foreign investors followed with Rp2tn in net awards, up from Rp1.3tn previously. Including secondary market activity, onshore banks have remained the largest type of net sukuk buyers YTD, with a cumulative net buy of Rp43.1tn, followed by retail investors with Rp21.3tn and mutual funds with Rp11tn, based on the DMO bond fund flow data as of 1-Aug-2025.

Demand likely to ease from record high but stay strong. We expect today’s sukuk auction to draw solid incoming bids of Rp38tn–48tn, still well above the Rp9tn target, albeit slightly below the record high of Rp50.3tn in the previous auction. There are some supporting factors for sukuk demand: 1) The SRBI yields and outstanding balances have continued to decline, indicating a possible shift in investor appetite back toward longer-term government bonds, including sukuk. 2) The prevailing risk-on sentiment in global and regional markets may sustain foreign investor interest in local-currency sovereign instruments, further supporting the sukuk auction demand. The only potential drag on investor appetite may stem from the significantly lower yield offerings compared to the end of last year, in line with the declining benchmark interest rate.

The rupiah yield curve twisted. Compared to the previous sukuk auction on 22-Jul, the rupiah yield curve has bearishly flattened: the 2-yr yield increased by 4 bps to 5.85%, and the 10-yr yield increased by a lower magnitude, down by 2 bps to 6.51%. We forecast the fair yields for the bond series to be auctioned today as follows: 5.45% (range: 5.40-5.50%) for 6-mo SPNS, 5.52% (range: 5.47-5.57%) for 9-mo SPNS, 5.71% (range: 5.66-5.76%) for 1.5-yr PBS003, 5.85% (range: 5.80-5.90%) for 3-yr PBS030, 6.00% (range: 5.95-6.05%) for 4.1-yr PBSG001, 6.79% (range: 6.74-6.84%) for 13.9-yr PBS034, and 6.92% (range: 6.87-6.97%) for 24.4-yr PBS038.

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