Market Summary

Yield Movements

Between 15 June and 15 August, local currency (LCY) government bond yields in Indonesia fell for all tenors except the 6-year maturity, which was unchanged. Bond yields declined more at the shorter-end of the curve than at the longer-end. The overall decline in yields was largely influenced by Bank Indonesia's accommodative monetary stance and the bleak economic outlook amid the coronavirus disease (COVID-19) outbreak. Also contributing to the overall decline in yields were concerns over increased debt supply and debt monetization.

Size and Composition

Indonesia's LCY bond market surged to a size of IDR3,585.2 trillion (USD251.3 billion) at the end of June, with growth accelerating to 7.8% quarter-on-quarter (q-o-q) in the second quarter of 2020 from only 0.4% q-o-q in the earlier quarter. On a year-on-year (y-o-y) basis, growth climbed to 16.8% in the second quarter of 2020 from 7.8% in the first quarter. The total stock of LCY government bonds at the end of June stood at IDR3,155.5 trillion on growth of 9.5% q-o-q and 19.0% y-o-y. Much of the growth stemmed from expansions in the stock of central government bonds amid higher issuance volume to fund a wider budget deficit. At the end of June, the total corporate bond stock reached IDR429.7 trillion on a decline of 3.0% q-o-q but an increase of 3.0% y-o-y. The amount of corporate bonds outstanding declined on weak issuance since the start of this year.

Policy, Institutional and Regulatory Developments

In June, a second revision to the 2020 state budget was signed into law, which called for increased spending and a wider budget deficit to support the economy amid the COVID-19 outbreak. The second revision to the 2020 state budget estimates a deficit amounting to IDR1.03 quadrillion, which is equivalent to 6.34% of gross domestic product, up from an earlier revision announced in April of a deficit equivalent to 5.07% of gross domestic product. The government expects state spending to hit IDR2.73 quadrillion in 2020, while state revenue is projected to be IDR1.69 quadrillion.