T

he government plans to issue 10 retail bonds this year in a move analysts see as an effective strategy to increase domestic investment in the country’s financial markets.

The Finance Ministry has recorded a growing number of domestic retail investors over the past few years.

The ministry’s government debt paper director, Loto Srinaita Ginting, said on Thursday that the government was planning to issue more retail bonds this year after the successful issuance of such debt instruments in the past.

“We’re planning to issue 10 retail bonds this year, eight of which will be in the form of both conventional or sharia-compliant retail saving bonds,” she said at a press briefing in Jakarta.

The aggressive retail bond issuance is in line with the government’s goal to make retail bonds account for 9 to 10 percent of this year’s gross government bond issuance target of Rp 825 trillion (US$58.65 billion).

Furthermore, Loto said, the issuance was aimed at increasing domestic investor’s participation in financing the country’s expenditure, particularly for education, as the government had allocated Rp 492.5 trillion for education in this year’s state budget.

Mandiri Sekuritas fixed-income analyst Handy Yunianto lauded the government’s strategy to expand the retail investors’ role in the bond market.

“The government has taken the right step in increasing retail investors’ role in our sovereign bond market, because currently, their ownership is only around 3 percent,” he told The Jakarta Post, adding that he expected retail bond ownership to grow thanks to the government’s plan to lower the tax rate for bond interest income, which currently sits at 15 percent per annum.

Loto said, however, that the ministry was still intensely discussing the plan and did not know when a new rate might be announced.

Handy said the government’s strategy to issue more retail bonds could also be considered a precautionary step to offset foreign capital outflow from the country’s bond market as global negative sentiment would continue to loom over the domestic financial markets this year.

He said tightening global liquidity in the United States, Europe and Japan and rising global interest rates were the main risk factors for Indonesia’s bond market and could potentially reduce foreign investors’ appetite in it.

Bank Indonesia executive director of monetary management, Nanang Hendarsah, said the central bank was ready to intervene in the currency and secondary bond market if needed to ensure stability, thus maintaining foreign investor interest in Indonesia’s financial markets.

Another threat might come from low yield, as Handy projected this year’s 10-year sovereign bond yield would drop to 7.7 percent from last year’s record yield of 8.6 percent. As of Thursday, the benchmark sovereign bond yield sits at 7.9 percent.

He said, however, that the lower yield might not necessarily diminish foreign investors’ appetite in Indonesia’s sovereign bonds, as high-yield chasers would shift their interest to the country’s bond market, because the Federal Reserve’s dovish stance on rate hikes this year might lower other countries’ bond yields.

Meanwhile, Loto said, the retail bonds also aimed to provide an investment alternative for individual investors, especially millennials, who had grown significantly in number over the past few years.

Indonesian Central Securities Depository data show the number of single investor identification (SID) holders consistently growing by double digits since 2016.

Last December, the depository recorded 1.62 million SID holders; 39.72 percent of those were under the age of 30.

Not only were they highly interested in investing in the country’s capital market, but they were particularly intrigued by retail sovereign bonds, as the Finance Ministry recorded that the owners of last year’s saving bond coded SBR004 were dominated by investors of the millennial generation.

Similarly, Loto said, this year’s first retail saving bond (SBR005) with an annual rate of 8.15-percent was also targeted at millennials and would be available online until Jan. 24.

She said the government was aiming to raise up to Rp 5 trillion to help fund the government’s education programs.