Indonesia’s 10-Year Bond Yield Climbs to a 5-Year High
Based on data from the Inter Dealer Market Association, Indonesia’s ten-year sovereign bond yield climbed 31 basis points since 4 September 2015 to 9.24 percent, its highest level since 2010, on Friday morning (11/09) amid concern about the ailing rupiah. The rupiah has been under pressure as emerging market currencies have become unattractive ahead of a looming US interest rate hike and China’s recent decision to devalue its yuan (triggering concern about a currency war among Asia’s emerging currencies).
Additional pressures on the rupiah (making Indonesian assets more vulnerable to external shocks) are caused by the country’s current account deficit, the government budget deficit, as well as the high level of Indonesia’s foreign debt.
Although having narrowed, Indonesia’s current account deficit is still large at USD $4.48 billion, or 2.1 percent of the country’s gross domestic product (GDP), in the second quarter of 2015. Indonesia’s trade and current account balances have improved primarily on rapidly declining imports. Indonesia’s central bank (Bank Indonesia) expects to see the ninth straight monthly trade surplus in August 2015. However, concerns remain as declining imports and exports signal that global and domestic economic activity has fallen since last year. Meanwhile, Indonesia’s state budget deficit in 2015 could swell to 2.23 percent of GDP, exceeding the 1.9 percent projection that was made earlier, due to a shortfall in tax revenue. All in all, despite attractive yields, investors are currently rather reluctant to enter the market.
The new economic policy package that was announced by President Joko Widodo on Wednesday had relatively little impact on financial markets.
Based on the Bloomberg Dollar Index, the Indonesian rupiah had depreciated 0.02 percent to IDR 14,336 per US dollar by 14:16 pm local Jakarta time on Friday (11/09). Meanwhile, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.11 percent to IDR 14,306 per US dollar.
Indonesian Rupiah versus US Dollar (JISDOR):
| Source: Bank IndonesiaBahas
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