Indonesia Embraces Higher Borrowing Costs to Sell More Bonds

  • Indonesia offered higher yields to sell the most bonds in two months, testing appetite for emerging-market assets as the government continues to build up a buffer for stimulus spending. The finance ministry sold IDR21.68tr of non-Islamic debt, excluding T-bills on 13 Apr 21.
  • That’s the biggest since the sale in mid-Feb 21 and compared with just IDR3.75tr rupiah at the previous conventional debt auction two weeks ago. The larger amount sold saw the bid-to-cover ratio plunge to 1.86, the lowest in a year.
  • “The incoming bids were healthier than before, but the below-target acceptance reflects misalignment in appropriate yields levels as seen by the government versus current market level,” said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp. in Singapore.
  • There are signs that demand may improve. For one, purchases by overseas investors accounted for 8.4% of total debt sold, up from about 4.3% at the previous offering. The nation’s bonds also saw the first back-to-back weekly inflow since Feb 21 as Treasury yields declined from their 30 Mar 21 peak.
  • The difference between the highest awarded yields and average awarded yields, or tails, have widened across the tenors, suggesting the finance ministry accepted higher borrowing costs.

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