Moody's Investor Service upgraded Indonesia's sovereign debt rating to Baa2 from Baa3 with a stable outlook on Friday, April 13th. However, investment risk indicators in the Indonesian bond market remain high. This is reflected in the Credit Default Swap (CDS) of Indonesian government bonds in US dollars, which, according to Bloomberg data, remains at 166.
Compared to other countries with the same Baa2 rating, Indonesia's CDS is the second highest after Colombia. The difference in risk perception for Indonesia remains quite wide compared to the Philippines and India, which also have equivalent Moody's ratings. Bulgaria has the lowest CDS.
Indonesia's US dollar-denominated sovereign debt rating is now one level above the lowest investment grade. The rating upgrade is expected to lower investment risk perception and the yield on Indonesian debt. However, the potential for further interest rate hikes by the US Federal Reserve (The Fed) remains an obstacle to lowering the CDS of Indonesian government bonds and to the appreciation of the Rupiah.
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