Bond market auction viewed as not overly concerning given holidays
Foreign sentiment towards Indonesian bonds seen stable, analyst says
Auction was the first since Moody's downgrade of credit rating outlook
Updates after central bank policy decision
By Ankur Banerjee
SINGAPORE, Feb 19 (Reuters) - A government bond auction in Indonesia - recently rocked by market turmoil - saw somewhat soft demand this week, but that was largely blamed on the Lunar New Year holidays.
The result - not exactly calming but not overly concerning - comes after investors have been unnerved by setbacks for Southeast Asia's biggest economy, putting the bond market and rupiah under the microscope.
The setbacks include last month's warning from index provider MSCI that the equity market risked a downgrade to "frontier" status over transparency issues as well as Moody's cutting of the country's credit rating outlook two weeks ago that cited reduced predictability in policy making.
Rising concerns over central bank independence after Thomas Djiwandono, a nephew of President Prabowo Subianto, was appointed as deputy governor at Bank Indonesia have also weighed on sentiment and the rupiah IDR= hit a record low of 16,985 per U.S. dollar in January.
On Thursday afternoon, the currency was trading at 16,895, 0.1% weaker on the day after Bank Indonesia held rates steady as expected.
FOREIGN SENTIMENT FOR BONDS SEEN STABLE
Indonesia raised a higher-than-targeted 40 trillion rupiah ($2.4 billion) from its regular bond auction on Wednesday in its first bond offering since Moody's downgrade.
While the total bids marked the lowest in almost a year at 63.06 trillion rupiah, officials and analysts said the Lunar New Year was the reason for the lower demand.
Foreigners accounted for about 15% of the total bid wins, an official said.
"Foreign sentiment for rupiah bonds has remained largely stable," said Winson Phoon, regional head of fixed income research at Maybank. "No sign of a drastic change in foreign positioning although foreign holdings have dipped slightly over the past one week."
The yield on 10-year Indonesian government bonds ID10YT=RR edged higher to 6.457%, having risen 30 basis points so far this year. The yield differential with the U.S. 10-year Treasury note stood at 233 basis points.
The debt was raised across eight tenors, with the bid-to-cover ratio on the benchmark 10-year at 1.7, the lowest level since Indonesia's influential finance minister Sri Mulyani Indrawati was sacked in early September.
"The incoming bid amount was decent, although not as high as those in previous auctions," said Frances Cheung, head of FX and rates strategy at OCBC. "MoF continued to upsize auctions in line with our expectation, which provides a buffer to financing needs."
Analysts expect foreign investors to remain wary of what comes next after the long series of setbacks.
"Near term, improved policy clarity and a more coordinated, firm commitment to fiscal discipline are key to underpinning investor confidence," said Maybank's Phoon.
(Reporting by Ankur Banerjee in Singapore; Editing by Edwina Gibbs)
((ankur.banerjee@thomsonreuters.com;; Mobile - +65 8121 3925;))