Indonesia's Bond Yield Imbalance Remains Attractive

The yield on Indonesia's 10-year local currency government bonds remains a concern for both domestic and international investors. According to Asiabondsonline data, the yield on the government's 10-year local currency State Treasury Securities (SUN) is 6.37%. This is the second highest after the Philippine government bonds, which reached 6.53%. Meanwhile, the yield on US government bonds is only 2.85%.

Indonesia's improved credit rating to investment grade has caused the yield on Indonesian bonds to trend downwards. However, compared to the yields of bonds in several Asia-Pacific countries, the SUN yield remains relatively high, only lower than that of Philippine bonds.

Indonesia's improved rating has also reduced the perceived risk of investing in Indonesian government bonds. According to Bloomberg data, on January 2, 2017, Indonesia's investment risk (Credit Default Swap/CDS) for 10-year government bonds was still at 226.1. However, by February 9, 2017, it had fallen to 164.49. Controlled inflation and exchange rate, a budget deficit kept below three percent, and a conducive socio-political and security environment will continue to attract investors to place their funds in the domestic financial market. This is because the investment yield in Indonesia remains quite high.

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