- The Indonesian government bond has been performing robustly in 2023, which is significant given Bank Indonesia’s nominal exit from the bond market and the weakening demand from domestic banks.
- Strong demand from foreign investors and domestic non-bank investors explains the increase in Indonesian bond value. However, declining liquidity in the domestic household sector may start to limit the demand from domestic buyers.
- Foreign investors’ ability to continue absorbing Indonesian bonds is also limited, given the prospect of massive UST issuance.
- Improving the liquidity condition within the domestic banking sector may help to revive banks’ demand for bonds, which would help to keep yields on Indonesian bonds per the government’s budget assumption.
