Improved Rating, Indonesia's Investment Risk Continues to Fall

The improvement in Indonesia's foreign currency government debt rating has led to a decrease in the perceived investment risk in the country. This is reflected in the decline of the Credit Default Swap (CDS) for Indonesian government bonds with a five-year tenor to below 100 since the end of November 2017. As a result, the yield on Indonesian government bonds has also fallen to around 6 percent.

According to Bloomberg data, on November 9, 2017, the CDS for Indonesian government bonds with a 5-year tenor closed at 76.92 points, down 9.77 percent from its position at the end of 2017. Compared to the position a year earlier, the CDS for Indonesian debt has fallen by more than 50 percent. This position is also down 42 percent from its position on May 18, 2017, the day before the international rating agency S&P upgraded Indonesia's debt rating to BBB- and placed it at investment grade. Finally, Fitch Ratings further upgraded Indonesia's debt rating to BBB, one notch above the lowest investment grade level.

For information, investment risk was once high when America was hit by the financial crisis in 2008. At that time, the CDS for Indonesian debt with a 5-year tenor reached above 726 and a 10-year tenor reached 666. CDS is a credit derivative instrument introduced by JP Morgan in 1997 and serves as an indicator reflecting the risk of investing in a particular bond. A higher CDS indicates a greater investment risk, and conversely, a lower CDS indicates a lower investment risk in an investment instrument.