Finance Minister Sri Mulyani delivers a speech at Investor Gathering on Monday , Dec. 18 (Image Credit : Finance Ministry)

JAKARTA (TheInsiderStories) – With the growing appetite for emerging market debt and in the hunt for better yields, Indonesian sovereign bonds have been popular this year.

The Ministry of Finance recorded the yield of the 10-year sovereign global bond and credit default swaps (CDS) declining amid the unstable global economic condition.

The S&P Indonesia Sovereign Bond Index, which seeks to track the local currency denominated sovereign bonds, jumped 15.24 per cent year to date as of Dec. 7, 2017.

The yield-to-maturity of Indonesian sovereign bonds continued to trend lower. Throughout the year, it has tightened 131 basis points (bps) to 6.57 per cent. It also represented a 312-bps plunge from the recent high, which was at 9.69 per cent on Sept. 30, 2015.

The improvement of domestic performance has boosted foreign’s domination in Indonesia’s secondary market. By Nov. 14, 2017, foreign investors ownership in sovereign bonds portfolio has jumped 20.76 per cent from last year with the same period. In total, the government has issued Rp 708.4 trillion (US$57.7 billion) sovereign bonds or 99.99 per cent from the total target.

The government’s latest global bonds raising worth US$4 billion in early December has shown a continued interest of global investors toward the Indonesian bonds issue, which was reported to be oversubscribed.

The global bonds consist of three tranches with different tenors, 5 years, 10 years and 30 years. The yield for the first tranche (5-years) and the third tranche (30 years) were the “lowest ever yield received by the Indonesian government for similar tenor”. The government received final order-book of 120, 130 and 150 investors for the respective tenor of 5 years, 10 years and 30 years.

“The current (global bonds) issue has made Indonesia’s yield curve to be improved, along with an expansion of investor base,” Director of Debt Strategy and Portfolio Directorate General of Budget Financing and Risk Management Ministry of Finance Schneider Siahaan said.

Minister of Finance Sri Mulyani stated Indonesia has gained growing international recognition, with three major rating agencies having issued the country an investment-grade credit rating. This acknowledgment has given the optimism for next year plan in term of financing strategy.

Yet, she is also concerned about the current global market situation, particularly with regard to the security and the geopolitical situation in North Korea, trade protectionism, U.S Tax Reformation plans, U.S central bank’s policy and re-balance of the China’s economy.

“The Indonesian economic condition is expected to improve in 2018. We need a policy to face the global uncertainty and accelerate implementation of the program,” she said on Ministry of Finance Investor Gathering, on Monday (18/12).

According to Moody’s, Indonesia’s external position has strengthened despite low commodity prices and bouts of volatility in capital flows over the past two years. The current account deficit narrowed to 1.8 per cent of GDP in 2016, and 1.5 per cent of GDP during the first nine months of 2017, from over 3 per cent as recently as 2014.

Along with net inflows of foreign direct and portfolio investments, a narrower current account deficit contributes to a build-up of gross international reserves to $126.0 billion as of end-November 2017, providing a large buffer against volatility in capital flows.

These developments are partly the result of a shift in monetary policy towards preserving macroeconomic stability and away from a focus on short-term growth. Fuel subsidy reform implemented in 2015 has already contributed to moderate external vulnerability.

Moreover, the government has demonstrated fiscal discipline against the backdrop of continued pressure from lower oil and gas prices in recent years. More generally, the government has pursued structural economic, fiscal and regulatory reforms, although these reforms have not yet provided a large boost to private sector investment.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com