The government will hold a regular sukuk auction with a target of Rp9tn, unchanged from the previous auction. Today’s sukuk auction will offer two SPNS series, consisting of the 6-month and 9-month tenors, and reopen five project-based sukuks: PBS003 (1.5-yr), PBS030 (3-yr), PBS034 (13.9-yr), PBS039 (16-yr), and PBS038 (24.4-yr). Our incoming bids model predicts that the demand in today’s sukuk auction will remain solid, though lower than the previous one, within a range of Rp25tn-35tn. 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.

Last sukuk auction preview (8-Jul): YTD record high in demand. The government’s first sukuk auction in 3Q25 recorded strong investor interest, with total incoming bids reaching Rp40.8tn, which was a new YTD high, surpassing the issuance target of Rp9tn and higher than the previous auction’s Rp39.7tn on 24-Jun. The 3-yr PBS030 continued to dominate the demand and attracted Rp13.3tn in bids (32.7% of total) despite being slightly lower than the previous auction’s figure of Rp14.4tn. This was well above its YTD average of Rp7.4tn. It was followed by the 1.5-yr PBS003 and 24.4-yr PBS038 series, which attracted bids of Rp8.6tn and Rp7.8tn (vs. Rp9.8tn and Rp6.0tn in the previous sukuk on 24-Jun, or Rp7.5tn and Rp4.6tn average bids per auction YTD) or contributed 21% and 19% of the total incoming bids, respectively. Other notable demand figures came from the 6-mo SPNS (12%), 4.2-yr PBSG001 (7.7%), 13.9-yr PBS034 (5%), and 9-mo SPNS (2.5%).

Sukuk auction results (8-Jul): upsizing the awarded amount, with lowering cost but shortening tenor. The government upsized the awarded amount to Rp12tn, matching the previous sukuk auction’s figure and exceeding the Rp9tn target. However, the blended weighted average cost of funds dropped to 6.26% (vs. 6.59% previously), but the average tenor also shortened to 7.07 years (vs. 11.44 years). With this auction, including the recent issuance of global sukuk, the YTD gross bond issuance has amounted to Rp783.1tn, or 63.1% of our full-year 2025 forecast (based on a -2.80% of GDP budget deficit assumption).

Sukuk auction result (8-Jul): onshore banks continued to lead in the primary market. Based on our calculation, in the latest sukuk auction on 8-Jul, onshore banks continued their domination in the primary market, awarding a net buy of Rp6.6tn (vs. Rp5.5tn in the prior auction) or 54.9% of total issuance. Bank Indonesia followed with a net awarded bid of Rp1.9tn (up from Rp0.6tn in the prior auction), and insurance & pension funds reported a net buy of Rp1.3tn (down from Rp1.6tn in the prior auction). Including secondary market activities, onshore banks are still the largest type of sukuk net buyer, with a YTD net buy of Rp35.2tn, followed by retail investors and other investors, which recorded net buys of Rp21.7tn and Rp15.1tn, respectively, based on the bond fund flow data from the DMO as of the settlement date on 18-Jul-2025.

Auction preview: solid demand expected, though likely lower than the previous. We expect investor demand in today’s sukuk auction to remain solid, potentially reaching Rp25tn–35tn, which would still be well above the government’s Rp9tn target, but likely lower than the previous auction’s record high. 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 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 has bullishly steepened ahead of the auction. Compared to the previous sukuk auction on 8-Jul, the rupiah yield curve has bullishly flattened: the 2-yr yield decreased by 9 bps to 5.88%, and the 10-yr yield decreased in a lower magnitude by 5 bps to 6.54%. We forecast the fair yields for the bond series to be auctioned today as follows: 5.60% (range: 5.55-5.65%) for 6-mo SPNS, 5.65% (range: 5.60-5.70%) for 9-mo SPNS, 5.77% (range: 5.72-5.82%) for 1.5-yr PBS003, 5.90% (range: 5.85-5.95%) for 3-yr PBS030, 6.75% (range: 6.70-6.80%) for 13.9-yr PBS034, 6.86% (range: 6.81-6.91%) for 16-yr PBS039, and 6.91% (range: 6.86-6.96%) for 24.4-yr PBS038.