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Growing expectations for a dovish pivot at the Federal Reserve are boosting bonds across Asia — but nowhere more so than in Indonesia.
Rising bets on Fed interest-rate cuts and a potential US recession saw global funds snap up US$3.5 billion of Indonesian debt last quarter, the most in four years.
Investors are buying rupiah bonds for other reasons too, including slower inflation and signs local policymakers have finished their own tightening cycle. “We are constructive on the rupiah-government-bond outlook,” said Jennifer Kusuma, a senior Asia rates strategist at Australia & New Zealand Banking Group Ltd. in Singapore. Domestic bond demand is sufficient to absorb supply, the inflation outlook is benign, and the comfortable fiscal position means there’s downside potential to the bond-supply target, she said.
Indonesia’s bonds have already returned 7.3 percent this year, the best performance in emerging Asia after the Philippines, according to Bloomberg indexes. A broader gauge of Asian sovereign debt has gained just 1.9 percent.
Slower inflation
One of the major positives for Indonesian bonds is the path of inflation. An annual gauge of core consumer prices dropped to 2.94 percent in March, below the middle of the central bank’s 2 percent-to-4 percent inflation target for the first time since July.
At the same time, headline inflation slid to 4.97 percent from 5.47 percent, helping make Indonesia’s 10-year inflation-adjusted yield — currently around 1.73 percent — the fourth highest of 13 major emerging-market economies.– Bloomberg
Online Reporter