Indonesia's Bond Yield Spread Highest in Asia Pacific

The yield on Indonesian government bonds remains quite attractive compared to other Asia-Pacific countries. According to Asiabondonline data, the yield on Indonesian local currency bonds reached 7.739 percent, the highest compared to other countries such as Japan, which only offers a yield of 0.06 percent, or the United States at 2.34 percent.

From a macroeconomic fundamental perspective, Indonesia's economy remains quite solid, with domestic economic growth around 5 percent in 2016, controlled inflation at 3.02 percent (YoY), and a relatively stable exchange rate at around Rp 13,000 per US dollar. This is what made the State Debt Securities (SUN) auction on January 3, 2017, still attractive to investors, even though JP Morgan downgraded its investment recommendation for Indonesian government bonds by two levels from overweight to underweight.

Two international rating agencies have included Indonesia in investment grade. Moody's Investor Service gives a Baa3 rating with a stable outlook, and Fitch Ratings is at BBB- with a stable outlook. Standard & Poor's, however, rates Indonesian government bonds one level below investment grade, at BB+ with a positive outlook.