Indonesia Government Bond Yield Surge

Government bond yields in Asian countries, including Indonesia, have shown an upward trend in line with the rise in United States (US) government bond yields. The improving US economy, which has driven dollar appreciation, has led investors to demand higher yields to protect their returns from rising inflation. The strengthening dollar and rising US bond yields have triggered a weakening of Asian currencies and driven up bond yields in the Asian region.

During the first half of 2018, Indonesian government bond yields rose by 157.8 basis points (bps) to 7.9%. This was the highest increase among countries in the Asian region. The second-highest increase was recorded for Philippine government bonds, at 71.1 bps to 6.41%, followed by Singapore at 54.5 bps to 2.26%. US Treasury Bill yields rose by 43.1 bps to 2.84%.

A current account deficit and a trade deficit caused the Indonesian Rupiah to depreciate by 5.72% against the US dollar during the first half of the year. Consequently, government bond yields experienced the highest increase, reflecting heightened investment risk perception. For information, during the first half of this year, the risk of default on Indonesian government bonds (Credit Default Swap/CDS) increased by 65.75 points (42.71%) to 219.68 from its year-end position of 153.953.