Market Summary

Yield Movements

Between 1 June and 15 August, local currency (LCY) government bond yields in Indonesia increased, resulting in the entire yield curve shifting upward. Global and domestic issues weighed on the domestic bond market, pushing yields higher during the review period. Positive economic conditions in the United States (US) continued to gain traction, signaling that the Federal Reserve is on track to proceed with its monetary policy normalization. Further exacerbating the global outlook were risks related to trade tensions between the US and the People’s Republic of China, and concerns that financial woes in Turkey could spark a contagion in other emerging markets, including Indonesia. On the domestic front, the continued weakness of the Indonesian rupiah and the wider current account deficit added pressure on yields.

Size and Composition

The local currency bond market in Indonesia managed to expand in the second quarter of 2018 amid the volatility that prevailed in financial markets. The amount of outstanding bonds climbed to IDR2,611.4 trillion at the end of June, with growth slowing on both a quarter-on-quarter and year-on-year basis. At the end of June, the outstanding amount of LCY government bonds rose to IDR2,208.9 trillion  and the stock of corporate bonds climbed to IDR402.5 trillion. 

Policy, Institutional and Regulatory Developments

On 23 July, Bank Indonesia resumed issuance of 9-month and 12-month Sertifikat Bank Indonesia (SBI). The central bank sold IDR4.2 trillion of 9-month SBI and IDR1.8 trillion of 12-month SBI during the auction. The issuance of conventional SBI is expected to help attract foreign portfolio investment into the Indonesian market and provide more diversity in the instruments being issued by the central bank. Since December 2016, only Sharia-compliant SBI had been issued on a monthly basis.