Indonesia: IDR bonds in a sweet spot

Positive catalysts support IDR bonds
Radhika Rao16 Sep 2021
    Photo credit: Unsplash Photo

    Positive catalysts continue to favour Indonesian bonds, as flagged earlier in IDR Rates: “Burden-sharing” a positive for IndoGB. These include (i) ebbing bond demand-supply uncertainty by a reduction in the size of the 2021 issuance, (ii) BI’s ‘burden-sharing’ arrangement for 2022 after active presence this year, (iii) excess domestic liquidity, and (iv) favourable externals i.e., softer US rates. These developments have allowed for a smaller weekly bond auction of IDR 21trn this week compared to IDR30-33trn earlier in the year. The government also raised US$ 1.23bn in 10y and maiden 40y bonds, with part of the proceeds to help repurchase existing bonds. Besides tapping current low rates, this fundraising exercise will also lengthen the maturity of outstanding debt at favourable costs. The tender offer to repurchase eight existing bonds (2022-2026) runs till Sep 17, according to the newswires. Concurrently, the debt office also sold debut EUR 500mn of sustainable bonds maturing in 2034, with proceeds to be channelled to eligible sustainability commitments. On the demand side, the income tax on bond interest for domestic investors stands lowered to 10%, on par with rates enjoyed by foreign investors, in an effort to draw more interest to the debt space. IDR 10Y yield (generic) holds near year’s low of 6.05-6.15% range.


    Fiscal slippage risks appear to be contained as the Jan-July fiscal deficit totalled IDR 336trn i.e., ~2% of GDP, with total revenues at 59% and expenditure at 50% of the full year budgeted targets respectively. Disbursements from the national recovery package (PEN) stood at 48% by end-August, in all raising the likelihood of keeping to the 2021 deficit target of -5.8% of GDP. Lastly, the record high trade surplus at $4.7bn in Aug will be a tailwind for the rupiah, given the boost to the current account math in the month. Exports benefited from the global upcycle in commodity prices, rising 64% y/y (oil & gas 78%, mining 163%), with yoy numbers also buoyed by base effects. Add to this, the drop in daily Covid case count to <10% of the peak is also expected to allow a gradual rollback in movement curbs. We remain constructive on IDR bonds, whilst keeping an eye on the evolving Covid situation, cautious comments from few rating agencies on the recent deficit financing plans and global financial conditions (particularly US rates and dollar) as the start of the US tapering nears.

    Radhika Rao

    Senior Economist – Eurozone, India, Indonesia
    [email protected]

    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

    The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. 

    DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-878-9999. Company Registration No. 196800306E. 

    DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    The information set out in this website ("Information") is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. This Information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. This Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.