Indonesian Government Bonds Remain Attractive

The yield on Indonesian Government Securities (SUN) remains attractive to foreign investors. Data from Asiabondsonline shows that Indonesia's bond yield stands at 7.086%, the highest compared to other Asian countries such as Vietnam, the Philippines, and Malaysia.

Indonesia's bond yield has actually fallen by 88.7 basis points this year, the largest drop among Asian countries. However, because the yield remains relatively high, foreign investors continue to park their funds in Indonesian government debt. Data from the Directorate General of Financing and Risk Management of the Ministry of Finance shows that foreign ownership of SUN reached Rp 725.6 trillion by April 11, 2017, an increase of Rp 60 trillion or approximately 9% from January 3, 2017.

Indonesia's 5% economic growth, controlled inflation, and stable rupiah exchange rate have caused the yield on Indonesian government bonds to fall more sharply than in other countries. If Standard & Poor's upgrades Indonesia's sovereign debt rating to investment grade, it is possible that government bond yields will fall further. This would benefit the government in issuing debt, as the yield demanded by investors would also decrease. Conversely, the price of Indonesian government bonds would become more expensive.