Market Summary

Yield Movements

Between 1 March and 8 May, local currency (LCY) government bond yields in Indonesia edged higher for nearly all maturities. The overall trend of rising yields in Indonesia stemmed from the resurgence of uncertainties in global financial markets as well as concerns over trade tensions between the People's Republic of China and the United States. In addition, concerns over the current account deficit weighed on investor sentiment.

Size and Composition

Indonesia's LCY bonds outstanding expanded to reach IDR3,083.7 trillion (USD216.5 billion) at the end of March, with growth accelerating to 8.7% quarter-on-quarter in the first quarter (Q1) 2019 from 2.7% q-o-q in the fourth quarter (Q4) of 2018. Annual growth in bonds outstanding also quickened to 18.7% year-on-year (y-o-y) from 13.7% y-o-y during the same period. All bond segments posted positive growth during the review period, with much of the growth driven by government bonds. Total outstanding LCY government bonds stood at IDR2,659.7 trillion at the end of March on growth of 9.6% q-o-q and 21.0% y-o-y. The total LCY corporate bond stock reached IDR424.1 trillion at the end of March, with growth expanding 3.0% q-o-q and 5.9% y-o-y. Good market conditions allowed corporates to tap the bond market for their funding needs in Q1 2019. A smaller volume of maturities was also observed than in the preceding quarter, resulting in an overall increase in the corporate bond stock.

Policy, Institutional and Regulatory Developments

In October, Bank Indonesia allowed hedging transactions involving the euro. The minimum transaction size for euro swaps is EUR1 million with terms of 3 months and 6 months. Earlier in July, the central bank allowed hedging transactions for Japanese yen swaps. These measures are expected to reduce dependence on the US dollar for trade and investment activities.