The government will conduct the first conventional bond auction for 2Q-2026 on 31-Mar, with a target of Rp36tn and a maximum issuance of Rp54tn, slightly higher than the Rp33tn target in the previous 1Q auction. The auction will include SPNs (1-, 3-, and 12-month tenors) and reopening FR series, i.e., 5-yr FR109, 10-yr FR108, 14.4-yr FR106, 19.4-yr FR107, 28.3-yr FR102, and 38.3-yr FR105. We expect demand to remain solid, supported by ample rupiah liquidity. As the first post-Eid auction, demand is projected to rebound to around Rp55tn (range: Rp50tn 60tn), in line with historical seasonal patterns.
Softer demand amid risk-off sentiment. The last conventional bond auction for 1Q-2026 (3-Mar) showed weaker demand, with total incoming bids declining to Rp50.9tn (vs. Rp63.1tn previously; YTD average: Rp72.9tn), marking the lowest level this year, in line with our forecast range of Rp46tn 56tn. The softness was mainly driven by lower demand for fixed-rate (FR) bonds, which fell to Rp42.2tn (vs. Rp57.3tn previously and YTD average: Rp54.7tn), while SPN demand improved modestly to Rp8.8tn (vs. Rp5.8tn), though still below its historical average (Rp18.2tn).
Demand remained concentrated in benchmark tenors, particularly FR108 (10-yr) and FR109 (5-yr), which recorded bids of Rp14.7tn and Rp10.8tn, respectively, accounting for around 50% of total bids, albeit lower than in the previous auction. Based on DMO data, both offshore and onshore participation declined, with offshore bids falling to Rp3.1tn (vs. Rp7.7tn previously and YTD average of Rp6.3tn) and onshore bids to Rp47.8tn (vs. Rp55.4tn previously and YTD average of Rp66.6tn), although domestic investors continued to dominate overall demand.
Bond auction result (3-Mar): higher cost of funds, with longer tenors. In line with softer demand, the government issued Rp34.1tn, slightly above the initial target but lower than Rp40tn in the previous auction. The weighted average cost of funds increased to 6.25% (vs. 6.02% previously), while the average tenor also lengthened to 14.16 years (vs. 9.94 years), indicating a preference to lock in longer-term funding amid market volatility. Despite weaker offshore bids, foreign allotment remained relatively resilient at Rp1.5tn, equivalent to around 50% of total offshore bids (vs. 81% previously; YTD average: 46.8%). As a result, total gross issuance reached Rp451.1tn YTD, or 28.8% of the FY2026 APBN financing target.
Onshore banks have remained dominant in the primary market; foreign still net sellers. Overall, in the 3-Mar auction, based on DMO data, we estimate that onshore banks maintained their dominance, securing Rp14.6tn (43% of total issuance). This was followed by insurance companies and pension funds (Rp10.3tn), other investors (Rp5tn), and Bank Indonesia (Rp3.5tn), while mutual funds and foreign investors each recorded Rp0.4tn in net awards.
On a 1Q-2026 cumulative basis, onshore banks remained the largest buyers with Rp91.5tn (49.2% of total awards), followed by insurance companies and pension funds (Rp51.9tn; 27.9%), Bank Indonesia (Rp15.6tn; 8.4%), foreign investors (Rp11tn; 5.9%), other investors (Rp10.3tn; 5.5%), and mutual funds (Rp5.9tn; 3.2%).
Including secondary market transactions, insurance companies and pension funds emerged as the largest net buyers (+Rp56.9tn), followed by onshore banks (+Rp37.5tn), other investors (+Rp34.1tn), Bank Indonesia (+Rp31.5tn), mutual funds (+Rp18.2tn), and retail investors (+Rp12.1tn, mostly from primary retail bond issuances). Meanwhile, foreign investors remained the only net sellers (-Rp29.4tn) (settlement date: 27-Mar-2026).
Auction preview (31-Mar): demand likely to rebound post-Eid holidays. We expect bond auction demand to rebound, in line with the historical pattern of the first auction following long Eid Fitr holidays. Several factors should support the stronger demand: (1) banking system liquidity remains stable, with projected liquidity at Rp56.3tn as of 27-Mar; (2) upcoming coupon payments of Rp2.75tn within the week, which will add to market liquidity despite no bond maturities; and (3) historical trends over the past 5 years, which show a consistent rebound in bids after an Eid holiday period. Overall, based on our model, we expect total incoming bids to exceed the government s initial target, coming in at around Rp50tn 60tn.
We forecast the fair yields for the bond series to be auctioned today as follows: 5.30% (range: 5.25-5.35%) for the 1-mo SPN, 5.40% (range: 5.35-5.45%) for the 3-mo SPN, 5.50% (range: 5.45-5.55%) for the 1-yr SPN, 6.61% (range: 6.56-6.66%) for the 5-yr FR109, 6.90% (range: 6.85-6.95%) for the 10-yr FR108, 6.93% (range: 6.88-6.98%) for the 14.4-yr FR106, 6.91% (range: 6.86-6.96%) for the 19.4-yr FR107, 6.92% (range: 6.87-6.97%) for the 28.3-yr FR102, and 6.95% (range: 6.90-7.00%) for the 38.3-yr FR105.
