Asian bonds are back in vogue as funds scoop up Indonesian debt

GLOBAL funds have just scooped up the most Indonesian bonds in over a year, a move that may signal a revival of interest in emerging Asian debt.

Rupiah sovereign notes reeled in US$467 million on Monday (Dec 5), the largest one-day inflow since August 2021, government data showed. This came on the heels of US$1.5 billion of purchases in November, which was the most in three years.

Indonesian bonds are a barometer of risk appetite, and the demand reflects the improving macro outlook as the Federal Reserve signals a slower pace of rate hikes. A relaxation of Covid curbs in China and easing price pressures in the region also provide scope for developing Asian securities to outperform.

“We see room for global EM bond funds to extend their position in the Indonesia bond market if we have a more durable improvement in the global risk backdrop,” said Jennifer Kusuma, a senior rates strategist at Australia & New Zealand Banking Group. “Flows data suggest that global exposure to EM local markets has reduced this year so far.”

Money managers had pulled US$10.2 billion from Indonesian debt in the first 10 months of the year, a record for the period, according to data compiled by Bloomberg going back to 2010. Bond markets worldwide suffered a rout after the Fed hiked rates aggressively, with the benchmark rupiah yield soaring to the highest in over two years in October.

The narrative has since reversed as the Fed softens its rate-hike stance. An index of Indonesia bonds delivered a 2.3 per cent return to dollar-based investors in November, the highest since August 2021. BLOOMBERG