(Feb 4): Demand for Indonesian government bonds fell to the lowest in more than a year after an equity meltdown spurred by index provider MSCI Inc’s concerns about the country’s investability.
The government sold 36 trillion rupiah of debt in Tuesday’s (Feb 3) auction, higher than the indicative target, according to the Ministry of Finance’s debt management office. The bid-to-target ratio dropped to 2.32, the lowest in a year, according to data compiled by Bloomberg.
MSCI’s warning about transparency in equity holdings last week caused stocks to suffer their steepest drop since the Asian Financial Crisis. Foreign investors sold a net US$202 million of Indonesian bonds on Wednesday and Thursday, before officials rushed to announce market-reform plans, helping to calm the market and bring back bond inflows.
Indonesian bonds had already been suffering from rising concerns about domestic fiscal discipline, a weakening rupiah and the central bank’s independence after the appointment of Indonesian President Prabowo Subianto’s nephew as a deputy governor. Yields on 10-year debt have risen around 25 basis points so far this year, to about 6.31%.
Indonesian Finance Minister Purbaya Yudhi Sadewa defended his government’s economic track record in an interview at a business forum in Jakarta on Tuesday and said the government will stick with a rule limiting fiscal deficits to a maximum of 3% of gross domestic product.
See also: Prabowo puts Indonesia on collision course with global markets
“Assurance from the finance minister that the deficit cap will be maintained and that a repeat of the 2021 burden sharing was unlikely should help cap yields,” said Radhika Rao, senior economist at DBS Bank Ltd.
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