Indonesian Government Bond Market: Challenges and Opportunities for Investors

KONTAN.CO.ID - JAKARTA. Foreign ownership of government bonds in Indonesia's market (SBN) has decreased once again. As of March 8th, 2023, foreign positions in the SBN market amounted to Rp 798.05 trillion, or 14.65% of the total. This figure is down from the end of February 2023 when it stood at Rp 804 trillion, or 14.79% of the total.

According to Fixed Income Analyst at Sucorinvest Asset Management, Alvaro Ihsan, the decrease in foreign ownership of SBN bonds is due to the strong US labor market conditions and inflation rates above expectations. In January 2023, US inflation reached 6.4% annually, higher than the expected rate of 6.2%.

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In addition, the US central bank, The Fed, is potentially considering aggressively increasing its benchmark interest rates. "In the short term, foreign ownership is still likely to decline, although the impact may not be significant, as the percentage is not as high as it was in previous years," said Alvaro on Thursday, March 9th.

Investment Analyst at Infovesta Kapital Advisori, Fajar Dwi Alfian, added that the decrease in foreign ownership of SBN bonds is a result of global sentiment, particularly regarding the expectation of The Fed's more aggressive interest rate increases. This condition has caused US bond yields to rise and the rupiah exchange rate to be pressured again.

Fajar believes that foreign investment in the SBN market will depend heavily on the prospects of monetary policy in the US. If The Fed raises interest rates aggressively, the negative impact on foreign investment in the SBN market could be significant.

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"If US economic data, including inflation, remains solid, it could be a negative sentiment for foreign investors," said Fajar.

Meanwhile, the sentiment that could attract foreign investment back into the SBN market is the easing of market concerns about The Fed's expected interest rate increases and the trend of declining global inflation. Fajar sees this as a possibility in the second half of 2023.

Alvaro predicts that bond prices will be quite volatile in the short term. However, if investors have a medium-term investment horizon, with attractive yield rates, then SBN bonds can provide good returns.

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Fajar added that in the short term, investors can rotate their bond assets to shorter tenors while still considering the attractive valuations of medium and long-term tenors. Investors can also use averaging down strategies as the yield rates become more attractive.