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Government bonds flourish as interest rate hikes approach peak: Analysts
Government bonds are considered to be a "wealth keeper" for investors who want to wait for the stabilization of the stock market.
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A Bank Mandiri teller counts rupiah banknotes in Jakarta on Jan. 6. (JP/Nurhayati)
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nalysts predicted the cycle of monetary policy tightening from Bank Indonesia (BI) had reached its peak, paving the way for the increment of government bond prices, making it a lucrative investment alternative this year.
They expected the asset class to be promising in the medium and long term, as it could become the "wealth keeper" for investors who wait for the stabilization of the equity market amid uncertainty about the United States interest rate policy.
Since March last year, the Federal Reserve has increased its benchmark funds rate nine times consecutively to between 4.75 and 5 percent. The move pushed other central banks, including BI, to follow suit.
Rully Arya Wisnubroto, senior economist at Mirae Asset Sekuritas, said many analysts forecasted the Fed's policy had approached its peak and the interest rate would be flat with the possibility to drop for the rest of the year.
"Right now, there are some analysts who say the rate hikes would be on pause in May. Personally, I think the Fed will increase it again by 25 basis points [bps], and then stop," Rully said in a media briefing on Thursday.
Read also: Tight monetary policy, capital exodus jitter Indonesia's bond market
During a volatile market, investors wait on whether the yield can continue to rise further; they might enter if the trend stabilizes, as the hike would lower the price of securities that had previously been issued, which investors would try to avert.
