JAKARTA: Indonesia’s bond selloff resumed Thursday as a surprise interest-rate hike earlier in the week failed to ease investor concerns over the broader economic pressures driving the market rout.
The benchmark 10-year yield rose 12 basis points to 7.47%, near its highest level since 2022, while the five-year yield surged as high as nine basis points to its highest in about six years. The rupiah weakened 0.1%, while the benchmark stock index rose as much as 1.7%, reversing earlier losses.
The selloff followed a brief reprieve after officials sought to reassure foreign investors, sparking a relief rally on Wednesday. A gain in US Treasury yields on bets the Federal Reserve will need to raise interest rates to counter inflation also soured sentiment toward Indonesian bonds, according to Adra Wijasena, a fixed income senior analyst at PT Shinhan Sekuritas Indonesia in Jakarta.
Indonesian assets have slumped this year, with the rupiah shedding about 7% against the dollar to rank as Asia’s worst-performing currency, while equities have tumbled more than 30%, the biggest decline among global primary indexes.
“We still see room for bond yields to move higher until the rupiah pressures stabilise,” said Jessica Tasijawa, fixed income analyst at PT Mirae Asset Sekuritas Indonesia. “We see Bank Indonesia appearing to retain scope for an additional 25–50 basis points of of rate hikes.”
Indonesian markets remain volatile as investors assess whether officials can rebuild confidence shaken by president Prabowo Subianto’s interventionist agenda. The outlook has become more complicated as rising tensions in the Middle East drive up oil prices, threatening to widen Indonesia’s trade deficit, stoke inflation and risk credit ratings.
So far this year, foreign investors have pulled out a net US$3.9 billion from local stocks and another US$597 million from bonds.
Bank Indonesia’s primary focus is currency stability and policymakers are taking preemptive action to ensure the rupiah finds steadier footing, Governor Perry Warjiyo said at an investor briefing this week after delivering a surprise interest-rate hike. Analysts expect Bank Indonesia to raise interest rates again when it meets next week.
The weakening rupiah also weighed on debts, Wijasena said, adding that market participants are still waiting for S&P Global Ratings’ assessment toward the nation’s sovereign rating.
