Indonesia raised $2.5 billion from sales of 10- and 30-year dollar bonds, tapping global investors to spur economic growth for the second time this year after winning investment-grade ratings.
The government sold $2 billion of debt due in April 2022 yesterday to yield 3.85 percent, or 184 basis points more than that for similar-maturity U.S. Treasuries, according to data compiled by Bloomberg. It also issued $500 million more of 5.25 percent bonds due 2042 at a yield of 4.95 percent, 181 basis points more than U.S. debt. The finance ministry said the offerings drew orders totaling $7.9 billion.
Southeast Asia’s largest economy is taking advantage of relative borrowing costs close to an eight-month low as the government plans to spend $53 billion through 2020 building railways, airports and seaports. Emerging-market debt sales climbed 33 percent to $335 billion this year, showing demand for those bonds even as Europe’s debt crisis worsened.
“This is a good time to issue given the global low interest rates and strong demand for emerging-market bonds,” Chia Tse Chern, the Singapore-based co-head of Asian fixed-income at UOB Asset Management, which oversees the equivalent of $15 billion of assets, said before the sale. “Demand will be strong from the U.S. and Europe because of Indonesia’s investment-grade status.”
Investors in the U.S. and Europe were allocated 34 percent of the 10-year bonds and 65 percent of the 30-year notes, the finance ministry said. Indonesian funds bought 23 percent of the 10-year bonds and 9 percent of the longer-dated debt.
Five-year credit-default swap contracts on Indonesia’s debt dropped four basis points to 167 yesterday, according to CMA, which compiles prices quoted by dealers in the privately negotiated market. The contracts insure debt against non-payment and traders use them to speculate on credit quality.
Fitch Ratings raised Indonesia’s ranking by one level to BBB- in December, followed by Moody’s Investors Service to Baa3 in January. Both are the lowest investment grades. Russia is rated two levels higher by Moody’s.
Indonesia raised $1.75 billion from the sale of the 30-year bonds in January, data compiled by Bloomberg show. The bond yield rose six basis points to 4.99 percent today, according to Royal Bank of Scotland Group Plc prices on Bloomberg. The 10-year bond sale at 3.85 percent compares with the 4.37 percent yield on Russia’s 4.5 percent dollar notes due April 2022, 233 basis points more than Treasuries.
The extra yield investors demand to hold Indonesia’s dollar-denominated securities rather than similar-maturity Treasuries narrowed 50 basis points this year to 224, according to JPMorgan Chase & Co.’s EMBI Global index. The spread reached 188 on March 19, the least since Aug. 5, 2011. The average yield premium for developing nations’ debt was 355 basis points, down 71 this year, according to JPMorgan indexes.
Indonesia’s dollar debt returned 14 percent in the past year, the second-best performance in Asia after the 17 percent gain on the notes of the Philippines, indexes compiled by HSBC Holdings Plc show.
Manulife Asset Management, which has Asian bond holdings of about $34 billion, favors holding Indonesia’s rupiah securities instead of its dollar debt because of the risk that U.S. yields will rise.
“We definitely like Indonesia,” said Neal Capecci, a portfolio manager in Hong Kong at Manulife Asset. “We think Indonesia should be on a path of sovereign upgrades. We prefer to buy the local sovereigns.”
Rupiah 10-year bonds yield 6.08 percent, 407 basis points more than similar-maturity U.S. bonds, according to data compiled by Bloomberg. The U.S. 10-year yield has risen 13 basis points this year to 2 percent after dropping 142 basis points in 2011.
Economic growth may reach 6.3 percent to 6.7 percent this year and accelerate to as much as 6.8 percent in 2013, the central bank said on April 12.
JPMorgan Chase & Co. and Standard Chartered Plc managed Indonesia’s debt sales.