Indonesia’s bond market erased outflows for the year as overseas investors piled into rupiah debt amid bets on imminent interest rate cuts by the Federal Reserve.
Global funds bought US$1.4 billion ($1.83 billion) of the nation’s government bonds this month, according to finance ministry data compiled by Bloomberg. That helped erased outflows of as much as US$2.7 billion in first four months of the year, the data show.
Sentiment toward emerging market assets has improved on bets the Fed will soon start cutting rates. Investors have also been lured to Indonesia’s debt due to the country’s robust growth and bets the central bank may quickly follow the Fed in easing policy.
“Emerging market assets are enjoying the best of both worlds: a weaker US dollar and materially lower US dollar rates,” said Eugene Leow, a fixed income strategist at DBS Bank in Singapore. Indonesian bonds “as a higher yielder and with BI likely to be more dovish would naturally be one of the key beneficiaries against this backdrop”, he said.
The demand for Indonesian debt has filtered into the nation’s bi-monthly bond auctions. Foreign investors accounted for almost a quarter of the demand at Tuesday’s sale, the most since March 2023, according to data compiled by Bloomberg.
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Higher inflows have helped push down bond yields, resulting in reduced borrowing costs for the government. The yield on the benchmark 10-year note slipped to 6.65%, the lowest level since April.
The inflows along with expectations of Fed rate cuts have also taken the pressure off rupiah, helping it erase all of this year’s losses versus the dollar.
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The extra yield on 10-year rupiah bonds over similar-maturity US Treasuries has started to narrow after widening to more than three percentage points this month, the most since May 2023.
“The immediate-term outlook does look enticing for IndoGBs,” DBS’s Leow said. “Foreign ownership is low given the challenging environment over the past two years and definitely have room to pick up.”
Charts: Bloomberg
