Indonesian Bonds Draw $1.2 Billion as Higher Yields Lure Funds

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(Bloomberg) — Indonesian bonds are on track for their biggest monthly inflow in more than a year, in a sign that government efforts to lift yields to lure foreign investors and support the rupiah are paying off.

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Foreign funds bought a net $1.2 billion of government bonds through June 26, putting the market on course for its largest monthly inflow since May last year, according to finance ministry data compiled by Bloomberg.

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“Higher Indonesian bond yields have attracted the attention of foreign investors once again,” said Eugene Leow, senior rates strategist at DBS Bank Ltd., in Singapore. “It also helps that the central bank has been been hiking to ensure rupiah stability at a time when the dollar is strong.”

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Indonesian assets are showing signs of recovery from a selloff earlier this month that pushed the 10-year yield to its highest level since late 2022 and sent the rupiah to a record low. Policymakers had pledged to go all out to stabilize the currency and raise bond yields to attract inflows, with Bank Indonesia delivering a surprise interest-rate hike in June. The central bank has tightened borrowing costs by a total of 100 basis points this year.

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The nation’s 10-year bond yield stood at 7.12% as of Tuesday, after climbing as high as 7.47% earlier this month. While the rupiah has rebounded about 2% from its all-time low, stocks are still down about 34% this year.

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A decline in global oil prices has also bolstered investor sentiment, as Indonesia ranks among the Asian economies most exposed to higher energy costs because of its reliance on fuel imports and government subsidies.

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“Bank Indonesia demonstrated its inflation-fighting credentials by tightening more than expected and in rapid succession,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA. “The decline in oil prices is also very positive for Indonesia as it reverses the earlier stresses caused by the oil shock.”

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