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ndonesian government bonds have transformed from the region'€™s worst performer to the best this month as a more stable rupiah and improvement in economic data have spurred foreign inflows.

The yields on the benchmark 10-year rupiah notes have declined by 107 basis points to touch 7.42 percent month-to-date, the best performer among 10 countries tracked by Asian Bonds Online.

The second-best, Vietnamese bonds, saw their yields falling by 30 basis points this month, followed by bonds issued by Singapore and Hong Kong, whose yields decreasing by 13 basis points and
10 basis points, respectively, as of October 21.

'€œThe net buying among foreign investors in the bond markets was driven by positive sentiment in the global economy, supported by improvements in our macroeconomic fundamentals, notably the strengthening rupiah,'€ Loto S. Ginting, the Finance Ministry'€™s director for government bonds, told reporters in Jakarta on Tuesday.

The Asian Development Bank (ADB) had previously warned about '€œrising risks'€ for investors holding bonds denominated in local currencies in East Asia, especially rupiah bonds, which became the region'€™s worst-performing debt paper this year due to the declining currency.

The rupiah, however, has reversed its weakening streak lately. It strengthened 12 basis points on Wednesday to trade at 11,341 per US dollar, according to the Jakarta Interbank Spot Dollar Rate (JISDOR).

The recent rise in the rupiah, combined with the likelihood that the US Federal Reserve will extend its monetary stimulus, have eased some concerns among foreign holders of Indonesian bonds and have led to the return of funds.

As of Oct. 18, foreign investors booked Rp 1.5 trillion of net buying to Rp 301.8 trillion, the highest level in six months, according to the latest statistics from the Finance Ministry'€™s debt management office.

'€œForeign investors see that now is the right time to enter the market, especially as Indonesia still offers yields that are higher compared to other countries,'€ Bank Danamon economist Dian Ayu Yustina said on Tuesday in a phone interview.

The rally in Indonesia'€™s bonds occurred amid bearish sentiments in the stock markets, an indication that investors are now increasing their holdings of fixed-income assets to reduce investment risks with the uncertain outlook of the global economy.

The Jakarta Composite Index (JCI) on Tuesday fell 1.4 percent to close at 4,512.74.

'€œWe are seeing net inflows in the bond markets but net outflows in the stock markets. What is happening now is a '€˜flight to quality'€™,'€ Finance Minister Chatib Basri said recently.

The Finance Ministry announced that it had raked in Rp 12 trillion '€“ up from its initial target of Rp 8 trillion '€“ in a government auction on Tuesday as it fully capitalized on the low-yield environment.

Incoming bids in the auction topped Rp 33.7 trillion, the highest ever this year. Weighted average yields for the benchmark one-year treasury bills and 10-year bonds stood at 5.85 percent and 7.42 percent, respectively, in line with their prices in the secondary market.

This year, the government has reached Rp 295.5 trillion, or 90 percent of total gross debt issuance target this year, according to Loto. The rest of the funding will be raised through issuing rupiah bonds, as well as dollar bonds specifically sold to domestic investors only.

The domestic dollar bonds would be issued by the end of November, with the government planning to raise up to $500 million from the issue, she said.