Indonesian sukuk posts longest rally in a year

Indonesia’s global sukuk rallied for a fourth month on speculation that a cut in government fuel subsidies will boost demand at auctions in the coming quarter.

It is the longest winning streak in more than a year. 

Yields on the 8.8 percent dollar-denominated Islamic bonds due in 2014 dropped 29 basis points in September to a record low of 1.86 percent, according to Bloomberg data.

The premium over similar-maturity Treasuries narrowed 34 basis points to 140 basis points, the least since the Asian nation sold the notes in 2009.

Indonesia is looking to offer international sukuk in the fourth quarter, according to Robert Pakpahan, acting director general of the debt management office.

Indonesia last sold global sukuk in November, with investors submitting bids for 6.5 times the $1 billion on offer. The yield on the 4 percent notes maturing in 2018 declined 47 basis points, or 0.47 percentage point, to a record low of 3.03 percent this month, according to data compiled by Bloomberg.

The nation has sold 90 percent of its Rp 159.6 trillion bond-sale target this year, with 45.5 trillion rupiah made up of Shariah-compliant notes, according to the debt management office’s website.

“The planned move to cut subsidies is positive as it shows that the Indonesian government is proactively managing their budget and expenses,” Chan Cheh Shin, who manages 850 million ringgit or $276 million as head of sukuk at OSK-UOB Islamic Fund Management Bhd. “That’s positive for Indonesian global bonds.”

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