JAKARTA (TheInsiderStories) – Indonesian Ministry of Finance will seek alternate funding channels in responding the rising of country’s bond yields due to current global situation.
On Tuesday, Finance Ministry turned down all Rp7,19 trillion (US$511.7 million) of bids submitted in the bond auction, rejecting the higher yields sought by investors. The government typically sought to raise Rp17 trillion rupiah from the bi-weekly conventional bond auction.
The offer is the lowest since June 18, 2013 amounting to Rp 7.74 trillion. Therefore, the government decided not to take all of these offerings because the demand for yield is considered irrational.
“Today’s situation is something we must constantly monitor very carefully,” said Luky Alfirman, the head of the ministry’s financing and risk management office on Friday (11/05).
The 10-year Indonesian bond yield hit 7.340 per cent earlier on Friday, the highest since March 2017, before falling slightly to 7.314 per cent. Bond market is susceptible to the risk-off investors turning down emerging market assets.
Debt sales from countries such as Russia have been canceled or postponed, while Argentina’s central bank has raised interest rates three times in a week to halt a currency slide.
Indonesia needs foreign money to help bridge funding gaps in the government’s ambitious plans for new infrastructure across a nation of more than 250 million people. Foreign investors hold around 38.4 per cent of local-currency bonds.
“Foreign ownership in government bonds is positive because it shows foreigners’ confidence on our economic fundamentals,” said Alfirman.
“But it also creates risk of vulnerability. Because of that, the government’s focus is on how to mitigate the risk.”
This year, the government also has other options to secure State budget financing such as loans from multilateral agencies or private placement.
The largest economy in Southeast Asia has long been a partner for development agencies such as World Bank and Asian Development Bank.
The ministry also has ramped up its issuance of retail bonds that are sold only to domestic investors, and has tried to make bond purchases easier by rolling out an online system this year.
Separately, Bank Indonesia stated the weakening of the rupiah in recent weeks is no longer in line with Indonesia’s current economic fundamentals.
Bank Indonesia said it will stay firm and consistent in directing the monetary policy to achieve stability and reaffirmed that it has considerable room to adjust the policy rate as a response.