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[ANALYSIS] Bond market investment prospects in 2021
Since the pandemic emerged, bonds have become a preferred investment option in the domestic market.
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![[ANALYSIS] Bond market investment prospects in 2021](https://img.jakpost.net/c/2019/07/12/2019_07_12_76197_1562906859._large.jpg)
The SBR007 retail saving bonds offer kicks off in Jakarta on July 11, 2019. (kontan.co.id/Dimas Andi Sadewo)
W
e have just passed a turbulent year. The COVID-19 pandemic has pressured all sectors of the economy, from a decline in business activity to a slump in financial markets and to restrictions on people's movements.
The International Monetary Fund (IMF) projects that global economic growth will contract 4.4 percent in 2020, lower than the 2.9 percent growth recorded in 2019. The global economy is expected recover in 2021 as businesses reopen and COVID-19 vaccines begin to roll out, with the IMF forecasting 5.2 percent global growth for the year.
The various fiscal and monetary policies pursued by countries in the world also share this optimism. To support global recovery, the central banks of a number of countries are continuing to maintain a low interest rate policy to boost local economies. In the financial market, investors are being more selective and are placing their funds in safe-haven assets like hard currencies, commodities (gold and crude oil) and the bond market.
Since the pandemic emerged, bonds have become a preferred investment option in the domestic market. This can be seen in the inflow of foreign funds throughout December 2020 to reach Rp 2.5 trillion (US$179.23 million), or a year-to-date outflow of Rp 89 trillion. As of Dec. 29, 2020, foreign ownership had reached Rp 973 trillion, or 25 percent ownership of all sovereign debt papers (SBN).
As part of its efforts to maintain financial market stability amid the health crisis, Bank Indonesia (BI) in January 2020 increased its SBN ownership to Rp 441 trillion (11 percent of total SBN ownership) from Rp 120 trillion (4.3 percent).
Most foreign investors remain interested in government bond instruments that have long tenors or a maturity of more than five years. By last December, 36 percent of foreign investors held bonds with tenors of 5-10 years while 33 percent held bonds with a tenor of more than 10 years.
The government issued SBNs worth Rp 1.53 quadrillion (gross issuance) in 2020 to achieve 100 percent of the total target. Since the beginning of the year, the government has issued Rp 640 trillion in rupiah-denominated bonds and Rp 123 trillion (gross) in global bonds denominated in the US dollar, euro and yen.
