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View all search resultsIndonesia’s bond market now driven by domestic policy, not global sentiment
Weak credit growth in the private sector has left these banks flushing with liquidity, which they have channeled into government bonds.
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Finance Minister Purbaya Yudhi Sadewa (left) and Bank Indonesia (BI) Governor Perry Warjiyo give a press conference on the results of a meeting of the Financial System Stability Committee (KSSK) on Nov. 3 in Jakarta. Purbaya has urged banks to channel funds into the credit market, instead of buying BI Rupiah Securities (SRBI) or government bonds (SUN), to accelerate economic growth. (Antara/Indrianto Eko Suwarso)
Indonesian government bonds have defied conventional wisdom this year.
While global monetary easing provided a tailwind, the dramatic plummet in 10-year yields to multiyear lows is not a simple story of foreign capital chasing returns. Instead, it reveals a profound structural shift in the market’s character, driven by domestic policy choices that are decoupling Indonesian debt from its emerging market peers.
Understanding this new paradigm is crucial to gauging the country’s future fiscal space and financial stability.
On the surface, the market appears overvalued. The spread over United States Treasuries has compressed to a record low, while the cost of insuring against sovereign default (credit default swaps) remains stubbornly high compared to regional peers.
This discrepancy hints at underlying risks, including policy uncertainty under President Prabowo Subianto’s administration. Yet, these traditional metrics are losing their explanatory power. The real story is one of a market increasingly insulated by domestic liquidity and state-directed priorities.
The primary engine behind the yield collapse is a fundamental change in market ownership. The significant buyers are no longer fickle foreign funds but domestic institutions: Bank Indonesia (BI) and the nation’s banks, particularly major state-owned entities. This shift has critical implications.
Weak credit growth in the private sector has left these banks flushing with liquidity, which they have channeled into government bonds. Simultaneously, the scheduled decline in outstanding BI Rupiah Securities (SRBI), a special type of bond that is being phased out, will inject even more liquidity into the system.
