Jakarta. Indonesia is seeing lower bids toward its euro-denominated bond as investors refrain from buying riskier emerging market assets ahead of a widely expected US Federal Reserve interest rate increase and the Greek debt debacle.
Indonesia raised 1.25 billion euros ($1.37 billion) from selling euro-denominated 10 year-bonds on Thursday after seeing bids of 1.9 billion euros, the Finance Ministry said in a statement released on Friday.
The government sold the 10-year bond at a discount, yielding 3.555 percent.
Government rupiah bonds of the same tenor yielded 8.3036 percent at the secondary market on Friday, according to data from the Indonesia Bond Pricing Agency (IBPA).
The government raised 1 billion euros from its first euro-denominated bonds issuance last year. The issuance was oversubscribed 6.7 times the amount, allowing the government to sell the bonds at far-lower than market’s yield.
Josua Pardede, an economist from Bank Permata, said US and the European investors are still in wait-and-see mode ahead of the Fed’s decision.
“At times full of uncertainty, from the looming Fed rate decision and the Greece [debt crisis] like this, the shorter the tenor, the better,” Joshua said.
Fed officials are scheduled to meet next week to discuss the country’s monetary policy for the next six weeks. Although economists think the Fed will unlikely raise its benchmark rate, they have come to consensus that the authority will increase it by the end of this year.
Finance Minister Bambang Brodjonegoro said on Friday that he felt satisfied with the bond sales, saying that it was “good” to be able to tap into euro-bonds market in a limited-time window amid concerns on Greece’s debt resolution.
Deutsche Bank, Societe Generale and Standard Chartered Bank acted as joint book-runners for the issuance with Bahana Securities, Danareksa Sekuritas and Mandiri Sekuritas managing the sale.
Lana Soelistianingsih, an economist at the University of Indonesia (UI), said the government was still on course with its aim to plug the state budget deficit, despite a decline in incoming bids for its euro-bonds.
“That was more like a ‘proxy’ to measure [Indonesia’s] attractiveness. The ministry could take it for an evaluation, or they could consider that they have the more qualified investors who are in for the long run,” Lana said.
The country targets a deficit of Rp 222.5 trillion this year, or 1.9 percent of the country gross domestic products, narrowing from 2.4 percent of GDP last year.
Indonesia has secured an investment-grade rating from Moody's Investors Service and Ficth Ratings. Standard & Poor’s said in May it will likely upgrade the country from junk in the next 12 months if the government improves the quality of public expenditure.