As expected, demand in the latest auction on Tuesday remained solid, 4.1times of the Government’s initial target. The candidate benchmark series for next year, i.e. 5yr FR78 and 10yr FR78, still attracted high demand, totaling Rp10.8tn and Rp6.2tn, respectively. Foreign bids also increased to Rp9.7tn from Rp8tn in the previous auction, making foreign bids to total bids’ portion continue to increase to 23.4% (vs. less than 16% in the previous auction).

The Government maximized issuances to Rp20tn with the average/highest yields awarded slightly higher than our fair yield forecast. Foreign awarded to foreign total bids was reported at 52.4% (vs. 67.5% in the previous auction). Historically, lower foreign bid absorption during an auction will push trading volume up, as foreign will chase bonds in the secondary market.

Thus, the Government has already issued Rp661.9tn – gross ytd or almost 83% of full year target. As there will be only 5 sukuk auctions and 5 conventional ones left this year, assuming that sukuk issuances are Rp6tn per auction, while private placement and retail portion will be 8.2% of gross (only Rp19.5tn target until the rest of this year), and no more global bond issuances, then then on average the Government should issue Rp17.5tn per auction for conventional bonds – we still believe it is manageable.

Despite the robust bond auction result, the benchmark bond series price was down after the auction, in-line with rupiah depreciation by 0.13% to Rp15,238/USD (depreciated 2.3% mtd or 12.3% ytd). The 5yr FR63 traded at 90 (-0.2%), yielding 8.28% (+4.2 bps); the 10yr FR634 at 84.3 (-0.7%), yielding 8.55% (+10.8 bps); the 15yr FR65 at 83 (-0.7%), yielding 8.71% (+8.3 bps); and the 20yr FR75 at 86.7 (-0.6%), yielding 8.95% (+6.8 bps).

According to PLTE data, foreign reported net buy of Rp1.2tn on Tuesday, – mostly non benchmark series. This breaks the five days of foreign outflows in bonds. Foreign ownership in government bond based on settlement date as of 5-Oct (reflecting trading at 3-Oct) was Rp849.8tn (outflow of Rp1.1n mtd but inflow of Rp13.6tn ytd) or 37% of total outstanding.

Meanwhile, JCI closed higher by 0.6% to 5,796.8 (-3% mtd or -8.8% ytd) on Tuesday. Stock trading value was reported at Rp8.5tn with foreign investors reported doing net outflows of Rp300bn (outflow of Rp3.6tn mtd or outflow of Rp54.8tn ytd). (Source: Mandiri Sekuritas)


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