Are Indonesian Government Bonds Still Attractive?

Indonesian government bonds (SUN) remain attractive to both local and international investors. The still-lucrative yield is a major draw for investors placing their funds in Indonesian government bonds.

According to Asiabondsonline, the yield on Indonesian government bonds in local currency (10-year tenor) was 6.12% as of August 30, 2021. This is higher than bonds issued by governments in other Asian countries. The SUN yield is also higher than that of United States government bonds, a benchmark for global investors.

The yield on Philippine government bonds in local currency (10-year tenor) is only 4.1%. Malaysian government bonds with the same tenor and currency have a yield of 3.21%, China 2.85%, and Vietnam 2.1%.

The yield on Indonesian government bonds is also higher than that of the US, which stands at only 1.33%. This means the SUN yield has a difference of 479 basis points (bps) compared to US government bonds.

Government bonds in other countries even offer negative interest rates or losses. This is evident in German government bonds with a yield of -0.39%, Dutch bonds at -0.26%, and Swiss bonds at -0.37%.

With a yield of 6.12% and Indonesian inflation up to June 2021 at only 1.5% (year-on-year/YoY), the net interest margin on Indonesian government bond investments is 469 bps. Coupled with the strengthening of the Rupiah by 2.23% against the US dollar (as of the close of August 30, 2021), foreign investors in the domestic bond market reaped double benefits.

According to the Indonesian Securities Valuation Company (PHEI), the Indonesia Composite Bond Index (INDOBeX Indonesia Composite Bond Index/ICBI) closed at 327.9267. This means the ICBI has increased by 13.6201 points (4.33%) compared to its position at the end of 2019 (year-to-date/YTD) and increased by 32.091 points (10.85%) from the same position the previous year (year-on-year/YoY).