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s emerging economies brace for the full-blown impact of the US'€™ quantitative easing, Indonesia is planning to frontload its bonds issuance and diversify its fixed-income instruments.

The government plans to frontload its bonds issuance in 2014, with more than half of the net bonds issuance target of Rp 205 trillion (US$17 billion) to be raised in the first half, head of the debt management office at the Finance Ministry Robert Pakpahan said recently.

The frontloading strategy was indicated by the fact that the government set an indicative target of Rp 10 trillion in its latest rupiah-denominated bonds auction on Jan. 6, while it only set Rp 8 trillion for most of the auctions last year.

This differs to the government'€™s strategy in 2013 when more than half of the bonds were issued in the second half. Things then went sour as talks of tapering in May triggered capital outflows in emerging markets, pushing up bond yields and increasing borrowing costs.

Indonesia suffered the severest impact, as reflected by the spike in its bonds yields being among the steepest in the region and its rupiah bonds being one of the world'€™s worst performers last year.

While the frontloading strategy might be able to hedge the government against future risks, it could lead to higher borrowing costs in the short-term, analysts have said.

'€œWere I [a bonds investor], I might ask for higher yields because I know that the government currently needs higher funds to meet its frontloading issuance target,'€ said Adra Wijasena, a fixed-income analyst with Mega Capital Indonesia.

Adra last week noted the upward trend of yields from such a frontloading strategy was evident in the first rupiah bonds auction this year, when investors tabled high yields despite the fact that Indonesia had just posted better than expected trade balance and inflation figures, which theoretically should push down yields.

Aside from implementing a frontloading strategy, the government also planned to diversify its bonds in a bid to prepare against tighter dollar liquidity this year.

Indonesia will issue euro-denominated bonds (Eurobonds) in the first half this year, while mulling a comeback for the Japanese yen-denominated Samurai bonds in the second half.

Indonesia will also start selling new savings bonds this year, a fixed-income instrument that combines the concept of bonds and term deposits, in addition to continuing the issuance of retail conventional bonds and sukuk.

So far, the government relies on dollar-denominated global bonds as its funding source from foreign currency, a strategy that has put the state coffers at risk from the rupiah'€™s unpredictable movements against the dollar.

The rupiah was Asia'€™s worst performing currency last year, having depreciated by more than 25 percent against the greenback.

'€œThe essence here is flexibility,'€ Finance Minister Chatib Basri said when questioned over the government'€™s move to issue Samurai bonds and Eurobonds this year.

'€œIf we only depend on a single instrument amid the ongoing uncertainty in the external environment, it will limit the government'€™s room to perform maneuvers [in the state budget],'€ Chatib explained.

Global bonds worth $4 billion had already been sold last week, with Indonesia joining its peers in the emerging market such as Sri Lanka and the Philippines, all of which
issued dollar-denominated bonds in the early days of January as part of their frontloading strategy.

Recent figures show that the bad times increased by 48 basis points since the beginning of January to touch 8.93 percent by the end of last week, the most among 11 countries tracked by the Asian Bonds Online.

The upward trend for Indonesia'€™s bonds'€™ yields was in line with the rise of US 10-year treasury bonds, which touched its two-year high level of 3.05 percent this month. It closed at 2.86 percent last week.

Indonesia was particularly sensitive to the fluctuation of global rates, as every 1 percent increase in the yield for US treasury bonds drove up bond yields in Indonesia by at least 1.3 percent, according to state-run Mandiri Sekuritas.

'€œThere have been talks that the yield for the 10-year US treasury bonds might surpass 4 percent, although I personally don'€™t see any chance of that happening,'€ Handy Yunianto, a fixed-income analyst with Mandiri Sekuritas, said in a phone interview.

He forecasts the treasuries'€™ yields to trade around 3.5 percent, while the yield for Indonesia'€™s 10-year bonds is unlikely to breach double-digit levels as it is predicted to hover at a '€œfavorable'€ level of 8.2 percent.