Asian Fixed Income: Indonesian Bonds Rally

Despite hawkish FOMC minutes and a stronger U.S. dollar, Indonesian bonds rallied 10.15% year-to-date (YTD), outperforming the other nine countries tracked by the S&P Pan Asia Bond Index, data as of Jun 7, 2016.

The S&P Indonesia Bond Index tracks the performance of local currency denominated government and corporate bonds from Indonesia and with a total market value of IDR 1,511 trillion. The robust gain was boosted by the strong performance of sovereign bonds; the S&P Indonesia Sovereign Bond Index rose 10.78% in the same period. The index’s yield-to-maturity tightened 115 bps YTD to 7.73% , after reaching a 13-month low at 7.40% in mid-April 2016.

The S&P Indonesia Corporate Bond Index gained 7.36% YTD, while its yield-to-maturity tightened 125 bps to 9.07%. Across sector-level indices, the S&P Indonesia Utilities Bond Index outperformed the other sector indices and advanced 8.32%.

Standard & Poor’s Ratings Services recently revised its outlook on the long-term sovereign credit ratings on the Republic of Indonesia to ‘positive’ from ‘stable,’ while affirming the ‘BB+’ long-term and ‘B’ short-term sovereign credit ratings. The market expects more investors to access the Indonesian market if the speculation of rating upgrade becomes materialized, particularly for those who have not been holding Indonesia bonds for rating reasons.

Exhibit 1: The Yield-to-Maturity of the S&P Indonesia Corporate Bond Index and the S&P Indonesia Sovereign Bond Index

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