Market Summary

Yield Movements

Between 1 June and 31 August, local currency government bond yields in Indonesia rose for most maturities of 10 years or less but fell for longer-end tenors (12 years or more). The uptick in yields for most tenors was driven by the continued monetary tightening stance of the United States Federal Reserve. Also pressuring yields were expectations that Bank Indonesia would hold rates steady for the rest of the year. In contrast, yields declined at the long-end of the curve as inflation returned to within the central bank’s target range of 2.0%–4.0% in May, which was earlier than previously projected. 

Local Currency Bond Market Size and Issuance

The local currency bond market in Indonesia contracted in the second quarter of 2023 due to a slowdown in both government and corporate bond issuances. Indonesia’s outstanding bonds dropped 0.5% quarter-on-quarter, amounting to IDR6,130.6 trillion compared with the previous quarter’s total of IDR6,161.1 trillion. Outstanding government bonds contracted as the government tapered its planned bond issuances for the year amid expected higher revenue collections while the stock of corporate bonds declined amid reduced refinancing needs by corporates as interest rates remained elevated. 

Policy and Regulatory Developments

In May, the Ministry of Finance disclosed plans to reduce bond issuance for the remainder of the year as the Government of Indonesia posted a budget surplus amid increased revenue collection. The government also plans to use excess cash generated in 2022 to help reduce bond offerings. In July, the government subsequently announced that net bond issuance is estimated to be cut to IDR362.9 trillion from the original target of IDR712.9 trillion. The reduced bond offerings were based on new assumptions presented at a parliamentary hearing that included a reduced budget deficit in 2023 equivalent to a gross domestic product share of 2.28%, down from 2.84% as initially estimated.