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Indonesia’s bond market remains attractive but risks loom
Lower benchmark rates globally, as well as fresh liquidity from international investors, and Bank Indonesia’s (BI) quantitative easing will continue to support the bond market, analysts say.
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Indonesia’s bond market is likely to remain among the most attractive in the developing world, but the risks of COVID-19 surges, a slow economic recovery and depressed state revenue weigh on fiscal capability and may trigger capital outflows, market experts say. (Shutterstock.com/Maciej Matlak)
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ndonesia’s bond market is likely to remain among the most attractive in the developing world, but the risks of COVID-19 surges, a slow economic recovery and depressed state revenue weigh on fiscal capability and may trigger capital outflows, market experts say.
As of Nov. 17, the bond market had grown 11.6 percent year-to-date (ytd). This is its best performance so far and an outperformance of the stock market, analysts at Bank Mandiri wrote in a November research note. The 10-year government bond yield increased 1.7 basis points (bps) to 6.19 percent on Friday, down by 87.2 bps ytd.
The Bank Mandiri analysts noted that lower benchmark rates globally, as well as fresh liquidity from global investors and Bank Indonesia’s (BI) quantitative easing would continue to support the bond market.
“Although the 10-year government bond yield has fallen, the real yield is still higher than the long-term average over the last 10 years and is offering the highest yields compared to other emerging countries,” analysts at Bank Mandiri wrote in the note. “We also believe lower interest rates and flush liquidity globally and domestically may persist next year.”
The analysts expected that the 10-year government bond yield would stay between 6 and 6.25 percent this year and forecast that the yield would fall next year to a range of 5.7 to 6 percent.
However, the continuing rise in virus cases and slow vaccine development could dampen the outlook as they could lower fiscal space and trigger the reemergence of risk avoidance, they warned.
Indonesia has fallen into a recession for the first time in two decades as the government struggles to contain the COVID-19 outbreak and its economic fallout.
