April 29, 2020 / 6:09 PM / a month ago

Indonesia central bank says yields bid too high at government bond auction

JAKARTA (Reuters) - Bond investors should not bet on Indonesia selling debt at higher yields, as the amount to be raised for the rest of the year will be manageable and capital inflows will push yields lower, central bank governor Perry Warjiyo said on Wednesday.

FILE PHOTO: The logo of Indonesia's central bank, Bank Indonesia, is seen on a window in the bank's lobby in Jakarta, Indonesia September 22, 2016. REUTERS/Iqro Rinaldi

Warjiyo’s comments come a day after the government raised 16.62 trillion rupiah ($1.08 billion) at its regular bi-weekly auction, below target, despite total incoming bids of 44.4 trillion rupiah.

The government called for a greenshoe option auction on Wednesday for a maximum of 23.8 trillion rupiah, covering for the target it did not meet the previous day.

Warjiyo told an online news conference the central bank bought 2.3 trillion rupiah in Tuesday’s auction as a non-competitive bidder and may purchase more in the additional auction.

The governor suggested investors had bet the government would pay higher yields due to its ballooning budget deficit this year as it ramps up funding to fight the COVID-19 pandemic.

“The market will see, at the beginning they bid for yields that are too high, thinking the sum that will be raised will be so large,” Warjiyo said, adding that the 8.08% weighted average yield awarded for 10-year bonds on Tuesday was too high.

“The yield differential between our bonds and other countries is so high and that’s attractive. If the market realises this, slowly bids will come with lower yields,” he said.

The government’s fiscal deficit is expected to swell to 5.07% of GDP this year, the widest in more than a decade, and far higher than an earlier plan for a 1.76% deficit.

This means the government would have to bump up its gross issuance of debt to 1,400 trillion rupiah ($91.32 billion) this year.

Warjiyo said the government would not raise all of that in the bond market as its cash and loans from development banks were expected to cover for some 500 trillion rupiah. BI’s new secondary reserve requirement ratio would also mean commercial banks will buy another 100 trillion rupiah.

The total amount to be raised in the bond market for the rest of 2020 was seen at around 425 trillion rupiah, indicating that the target in each auction will not jump very much, he said.

By early May, BI would have injected a total of 503.8 trillion rupiah of additional liquidity to the financial system to help cushion the economic impact of the virus outbreak, in operations Warjiyo called “quantitative easing”.

Reporting by Gayatri Suroyo, Tabita Diela and Fransiska Nangoy; Editing by Jacqueline Wong

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