Indonesian Government Bond Yields Fall Sharply

Indonesia's government bond yields fell the most sharply in 2017 (year-to-date). Asiabondsonline data recorded Indonesia's government bond yield at 7.049 percent on May 19, 2017, down 92.4 basis points (bps) from the end of 2016. This decline was the largest compared to government bond yields of other Asian countries. Meanwhile, government bond yields throughout May 2017 fell by 0.1 bps.

Continued domestic economic growth of around five percent, a stable Rupiah exchange rate, and controlled inflation have maintained Indonesia's financial markets as a preferred investment destination for foreign fund managers. Furthermore, the international rating agency Standard & Poor's upgrade of Indonesia's foreign currency sovereign rating to BBB- on May 19, 2017, placing it in the investment-grade level, could further drive down Indonesian bond yields.

Indonesia's entry into the investment-grade level indicates a reduction in the risk of investing in the domestic money market. Conversely, Indonesian bond prices are likely to rise. This will benefit the government as the yield on future debt issuance will decrease, resulting in lower issuance costs.