The government will hold the first conventional bond auction of 4Q25 today, targeting Rp23tn (max. Rp34.5tn), lower than the previous auction’s figure of Rp27tn. The offer includes two SPN series and six reopened FR series (5-yr FR109, 10-yr FR0108, 15-yr FR106, 20-yr FR107, 29-yr FR102, and 39-yr FR0105). Based on our auction model, we expect the total incoming bids to moderate compared to the previous auction but remain solid and above the target, in a range of Rp85tn–95tn. Demand is likely to be supported by ample onshore liquidity and reinvestment flows, although foreign participation may stay muted amid a softer global risk appetite.

Government lowers the 4Q25 bond issuance target. The government has announced its 4Q25 bond and sukuk auction target at Rp180tn, lower than the realization figures in the previous quarters (Rp222.2tn in 1Q, Rp208tn in 2Q, and Rp280.4tn in 3Q). With 6 conventional and 6 sukuk auctions scheduled for this quarter, the target implies an average issuance of ca. Rp30tn per 2-week auction (vs. Rp40tn YTD average). The lower 4Q25 auction target aligns with our expectation and reflects the government’s pre-funding and front-loading strategy earlier this year, though it remains below our projection of Rp35.5tn. Our projection assumes a -2.78% of GDP fiscal deficit, with retail bond issuance of Rp27.8tn, private placements of Rp7.4tn, and global bond issuance of Rp85.4tn for the remainder of the year. Given the ca. Rp171.3tn of bonds and sukuks maturing in 4Q25, we reiterate our view that the bond supply risk remains manageable, supported by ample liquidity buffers and excess financing from previous quarters. Note that the average incoming bid per 2-week auction has amounted to Rp122.8tn YTD.

Demand rebounds as expected. As expected, demand rebounded in the government’s last conventional bond auction for 3Q25 (23-Sep). The total incoming bids rose 23.8% to Rp98.5tn (vs. Rp79.6tn in the 9-Sep auction and the Rp89.6tn YTD average), slightly above our projection of Rp87tn–97tn. Demand was again concentrated in the 5.5-yr FR109 (Rp24.4tn) and 10.6-yr FR108 (Rp21.6tn), which together accounted for ca. 47% of total bids, although both series saw slightly lower participation than in the previous auction. Foreign demand also improved, increasing to Rp12.8tn (13% of total) from Rp9.1tn (11.5%) previously, yet it was still below the YTD average of Rp18.2tn (20.3%). Meanwhile, non-competitive bids rose slightly to Rp18.1tn (18.4% of total vs. 18.1% prior).

Higher issuance, lower cost of funds, shorter tenors. In line with the stronger demand, the government issued Rp33tn, exceeding both the Rp27tn target and the Rp24.5tn in the prior bond auction. Despite the higher issuance, the weighted average cost of funds fell to 5.96% (vs. 6.39% prior; YTD avg.: 6.68%), while the average tenor shortened to 11.8 years (vs. 16.2 years prior; YTD avg.: 12.3 years).

Insurance and pension funds dominate the latest auction; banks still lead YTD.  In the 23-Sep conventional bond auction, insurance and pension funds emerged as the largest type of net buyers for the first time this year, absorbing Rp10.4tn (vs. Rp5.7tn in the prior auction; YTD avg.: Rp4.6tn) and accounting for 31.6% of the total awards. Onshore banks followed, with Rp9.2tn (vs. Rp11.1tn prior; YTD avg.: Rp12.5tn), while other investors ranked third at Rp6.7tn (vs. Rp1.8tn prior; YTD avg.: Rp3.1tn).

Year-to-date, onshore banks have remained the largest participants in the primary market, securing Rp225.7tn or 42.8% of the total conventional bond issuance, followed by foreign investors (Rp99.3tn) and insurance & pension funds (Rp83.2tn). If including secondary market transactions and maturities, Bank Indonesia remains the largest net buyer YTD (+Rp139.2tn), followed by insurance & pension funds (+Rp86.8tn) and onshore banks (+Rp73.4tn), while foreign investors recorded a smaller net buy of Rp17.6tn, based on the DMO data as of 3-Oct-2025.

Auction demand may ease amid weak global sentiment. We expect the demand in today’s conventional bond auction (7-Oct) to be lower than in the previous auction, reflecting weaker global sentiment, yet still above the government’s initial target, within a range of Rp85tn–95tn. On the domestic side, ample rupiah liquidity should continue to support onshore demand. The banking system’s liquidity remains strong, with projections reaching Rp159.2tn as of 6-Oct (vs. Rp138.8tn prior). In addition, ca. Rp11.6tn of bonds will mature this week, alongside Rp1.77tn in coupon payments, providing reinvestment support. However, foreign participation may remain limited amid global uncertainty. The prolonged US government shutdown has disrupted public services, delayed key economic data releases (including the September BLS jobs report), and increased concerns over potential job losses. Meanwhile, markets still expect another Fed rate cut this month, although the odds for a December cut have diminished. All in all, based on our incoming bids model, we project the total bids to range Rp85tn–95tn, lower than in the previous auction but still signaling solid underlying demand, supported by domestic liquidity.

The rupiah yield curve is mixed. Compared to the previous conventional bond auction on 23-Sep, the rupiah yield curve is mixed; the 2-yr yield inched up slightly by 1 bps to 4.96%, while the 10-yr yield decreased by 4 bps to 6.30%. We forecast the fair yields of the bond series to be auctioned today as follows: 4.70% (range: 4.65-4.75%) for the 3-mo SPN, 4.75% (range: 4.70-4.80%) for the 1-yr SPN, 5.35% (range: 5.30-5.40%) for the 5-yr FR0109, 6.25% (range: 6.20-6.30%) for the 10-yr FR0108, 6.70% (range: 6.65-6.75%) for the 15-yr FR106, 6.78% (range: 6.73-6.83%) for the 20-yr FR107, 6.84% (range: 6.79-6.89%) for the 29-yr FR102, and 6.87% (range: 6.82-6.92%) for the 39-yr FR0105.