Low­est ever bond yield still lu­cra­tive

The Jakarta Post - - BUSINESS - Prima Wi­rayani

ORI014, of­fers a less lu­cra­tive yield com­pared to those in 2012 and 2016 Sell­ing agents de­mand for the bonds not as high as gov­ern­ment ex­pected

Henny Galla, a 29-year-old pri­vate em­ployee liv­ing in Jakarta, has been buy­ing re­tail gov­ern­ment bonds (ORI) as an al­ter­na­tive in­vest­ment in re­cent years.

She pays close at­ten­tion to the bonds’ yield af­ter taxes and bank ad­min­is­tra­tion fees, be­cause she can only af­ford a small amount of ORI sub­scrip­tions.

“If the yield can’t cover the banks’ monthly ad­min­is­tra­tion fees, [the bonds] be­come less at­trac­tive,” she said on Fri­day.

She is of the view that this year’s re­tail bond, namely ORI014, of­fers a less lu­cra­tive yield com­pared to those in 2012 and 2016 of 8.5 per­cent and 6.6 per­cent per an­num, re­spec­tively. But that has not di­min­ished ap­petite for the prod­uct.

The gov­ern­ment on Fri­day kick-started the of­fer­ing pe­riod for trad­able ORI014, with a tenor of three years and a yield of 5.85 per­cent per year, the low­est in his­tory.

Re­tail in­vestors can or­der a min­i­mum of Rp 5 mil­lion (US$371) worth of bonds and a max­i­mum of Rp 3 bil­lion at 18 banks and one se­cu­ri­ties firm, which act as sell­ing agents. The or­der has been be opened un­til Oct. 19 while the al­lo­ca­tion and set­tle­ment dates are set on Oct. 23 and 25, re­spec­tively.

Henny, how­ever, said she could un­der­stand the sit­u­a­tion as the lower yield sig­naled the coun­try’s bet­ter eco­nomic fun­da­men­tals.

“For those who have a lot of money, the bond is still at­trac­tive as its yield is still higher than the bank’s time de­posit in­ter­est rate,” she added. “More­over, there will be cuts in the time de­posit in­ter­est rate go­ing for­ward.”

Bank In­done­sia (BI) has low­ered its pol­icy rate — the sev­en­day re­verse re­pur­chase (repo) rate — by 25 ba­sis points (bps) to 4.25 per­cent this month af­ter slash­ing it off last week. Such a cut brings the 12-month bench­mark in­ter­est rate hov­er­ing at 5.5 per­cent.

The rate cut should trans­late into lower bank de­posit and loan in­ter­est rates.

Fixed in­come an­a­lysts, mean­while, are of the view that the of­fered yield re­mains lu­cra­tive for re­tail in­vestors as it is higher than the de­posit rate.

“More­over, this in­stru­ment is fully guar­an­teed by the gov­ern­ment, un­like the time de­posit that is guar­an­teed by LPS [In­done­sia De­posit In­sur­ance Cor­po­ra­tion] only up to Rp 2 bil­lion,” BNI Seku­ri­tas fixed in­come re­search head Ari­awan said.

RHB Bank­ing Group debt cap­i­tal mar­ket as­sis­tant vice pres­i­dent Adra Wi­jasena said de­spite still be­ing lu­cra­tive, the of­fered yield was some­how lower than ex­pected.

ORI011 and 012, for in­stance, of­fered yields 100 bps higher than the rate of three-year gov­ern­ment bonds. How­ever, start­ing last year, the re­tail bonds’ yield is of­fered around the same rate of the three-year debt pa­pers, which cur­rently stood at around 5.9 per­cent, he said.

The gov­ern­ment has ar­gued that the coun­try is cur­rently in a low in­ter­est rate en­vi­ron­ment due to its rel­a­tively high eco­nomic growth of around 5 per­cent and be­nign in­fla­tion of be­low the tar­geted 4.3 per­cent this year, the Fi­nance Min­istry’s fi­nanc­ing and risk man­age­ment di­rec­tor gen­eral Robert Pak­pa­han said on Fri­day.

In­done­sia Bond Pric­ing Agency (IBPA) data show that the 10-year gov­ern­ment bond yield stood at 6.75 per­cent on Fri­day, up from around 8 per­cent in Jan­uary.

“We see [the yield of ] 5.85 per­cent is still lu­cra­tive be­cause ORI is guar­an­teed by the gov­ern­ment, and is trad­able at the se­condary mar­ket. ORI also has lower with­hold­ing tax at 15 per­cent com­pared to that of time de­posit at 20 per­cent,” Robert said.

The gov­ern­ment ini­tially ex­pects to reap Rp 20 tril­lion from the ORI014 is­suance to be added into its gross bonds is­suance tar­get of Rp 712.9 tril­lion by the year-end.

How­ever, based on the sur­vey con­ducted by the sell­ing agents, they can only sell around Rp 13.4 tril­lion of the re­tail bond.

Robert said the gov­ern­ment would look into whether it could up­size the amount. The gov­ern­ment will still have eight more bond auc­tions this year.

As of Sept. 26, gov­ern­ment bond is­suance has reached al­most 83 per­cent of the tar­get.

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