Indonesia’s Five-Year Yield Sinks to 16-Month Low on Tax Amnesty

  • Rupiah notes offer highest yield in Asia outside of India
  • Foreign ownership of Indonesia government bonds at record high

Indonesia’s five-year bond yield fell to a 16-month low as a tax amnesty that’s projected to draw in a cash pile from undeclared earnings takes effect this month.

Government bonds rose for a second day as Indonesian markets reopened following the week-long Muslim holiday. While the nation offers relatively higher yields than some of its Asian neighbors, there’s also been a flight to government debt after the U.K. opted to leave the European Union and as U.S. rate increase bets fade.

“The market has been quite supported ever since the passing of the tax amnesty bill, which is expected to bring inflows back into the country, supporting the fiscal deficit and currency,” said Ezra Nazula, who helps manage $4 billion as head of fixed income at PT Manulife Aset Manajemen Indonesia in Jakarta. “I believe this is also due to the overall global hunt for yield given the dovish Federal Reserve.”

The five-year yield dropped three basis points to 6.96 percent in Jakarta, the lowest level since March 2015, according to prices from the Inter Dealer Market Association. It declined 16 basis points on Monday. Similar notes in the Philippines pay 2.79 percent while those in Thailand offer 1.61 percent.

Overseas investors have bought $6.5 billion of Indonesian debt this year after President Joko Widodo scrapped a tax on interest earned on bonds and accelerated spending on infrastructure. The country’s bonds are more attractive than its emerging Asian peers given their higher yields and the strengthening rupiah, according to Mitsubishi UFJ Kokusai Asset Management Co.

The rupiah weakened 0.1 percent to 13,120 per dollar on Tuesday, paring its gain over the past month to 1.3 percent, the best performance in Southeast Asia after the Malaysian ringgit.

The two-year bond yield fell 24 basis points to a 16-month low of 6.84 percent after retreating eight basis points on Monday. Tuesday’s drop was the steepest since May 13.

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