Market Summary

Yield Movements

Local currency (LCY) government bond yields in Indonesia rose for all tenors between 1 March and 15 May, leading the entire yield curve to shift upward.  The uptick in yields was largely driven by a market sell-off as investor appetite for Indonesian bonds waned amid rising yields for United States (US) Treasuries and the broad strengthening of the US dollar against other currencies. Foreign investors dumped Indonesian bonds as they rebalanced their portfolios, shifting their holdings away from emerging market assets. 

Size and Composition

Indonesia’s LCY bond market reached a size of IDR2,598.1 trillion (USD189 billion) at the end of March, expanding at a faster pace of 4.0% quarter-on-quarter in the first quarter of 2018 versus 2.9% quarter-on-quarter in the fourth quarter of 2017. Compared with the same period a year earlier, LCY bond market growth eased to 13.4% in the first quarter of 2018 from 14.0% in the earlier quarter. The overall growth of the market was largely driven by the government bond segment. At the end of March, the total government bond stock climbed to IDR2,197.6 trillion and corporate bonds rose to IDR400.5 trillion. 

Policy, Institutional and Regulatory Developments

In February, Bloomberg announced that it will include IDR-denominated bonds as part of Bloomberg Barclay’s Global Aggregate Index, with effect in May. Some 50 series of IDR-denominated bonds will be added to the index, contributing to its returns by 1 June. This move is expected to boost interest in Indonesian bonds