Additional govt bond supply not worrying: Citi
Aditya Suharmoko, The Jakarta Post, Jakarta | Wed, 05/20/2009 3:27 PM
Market should not be worried about additional government bond supply, Citi says, expecting the yield of government's five-year bonds to reach 9.75 percent by the end of June.
"We think rupiah-denominated bonds have more room to rally from here and targeting five-year bonds to reach 9.75 percent by the end of June. Supply should not be a huge issue," Citi analyst Johanna Chua said in a statement.
Chua mentioned three reasons: One, Indonesia's 2009 budget deficit will likely remain below target, between 1.5 percent and 2 percent of the gross domestic product (GDP), as the government spent only 21 percent of its target and had Rp 11.2 trillion in budget surplus as of April.
Two, the government will try to tap as much as half of the US$4 billion in standby loans allocated in the budget in the second half this year despite the improved market conditions in the last two months. Standby loans is supposed to be drawn in certain circumstances only, that is when the market is not favorable towards bonds.
"The conditions to draw down the standby loans are not 'triggered'. However, we expect that the Finance Ministry will either re-negotiate these 'triggers' or convert some of these standby loans into direct loans, as Bappenas head recently mentioned," she said.
Three, the government has already issued 62.8 percent of its revised broader borrowing program, and other funding sources outside of regular bonds are being lined up.
According to the Finance Ministry's directorate general of debt management, the gross bond issuance is Rp 97.8 trillion, with an additional of Rp 44.5 trillion, making it reaches Rp 142.3 trillion.
"The government may only need to tap around Rp 21.1 trillion on regular bond issuance, about Rp 3 trillion a month, which looks very manageable," said Chua.
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