(Bloomberg) -- Foreign investors rushing to buy Indonesian bonds on growing signs of a Federal Reserve policy pivot remained unfazed by pro-democracy protests in the country on Thursday.
They poured $610 million into Indonesia bonds on that day, the biggest single-day inflow in five years. While the protests against a planned revision of regional election laws forced lawmakers to scrap the proposal the same day, unabated inflows into bonds shows the hunt for yields is a priority for global investors.
“The rapid fall in Treasury yields have improved yield differentials for Asian local currency sovereign bonds, including Indonesian government bonds,” said Frances Cheung, head of foreign-exchange and rates strategy at Oversea-Chinese Banking Corp. The recent strengthening of the rupiah and lower currency hedging costs are additional supporting factors for rupiah debt, she added.
Indonesia’s 10-year yields are now offering a premium of around 280 basis points above similar-dated Treasuries, up from 260 basis points at the start of this quarter. Rupiah bonds have received foreign inflows to $2.2 billion month-to-date, the most since January 2023.
Among local factors supporting bonds is Indonesia’s target deficit of just 2.53% of gross domestic product in the 2025 budget, which is lower than the latest estimate of a 2.7% deficit for this year and well below the 3% legal cap. Bets that Bank Indonesia will start cutting interest rates next month are another tailwind.
They have ensured that the impact on local markets from an opposition to a proposal, which would have enabled President Joko Widodo’s youngest son to run in regional elections in November, were short-lived.
Indonesia’s benchmark 10-year yield closed about four basis points higher on Thursday at 6.65%, but it has pared most of its rise since then, while the rupiah has rallied to the highest since September. Overseas funds bought $684 million of Indonesian stocks on a net basis in August through Thursday, set for a second straight month of inflows.
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