Jakarta. Foreign ownership of Indonesia’s high-yielding government bonds has slipped to its lowest in nearly three weeks, latest data from finance ministry shows, although an auction of bonds this week suggested investor appetite is returning.
Worries about a slowing economy, weakening currency, a pick-up in inflationary pressures and nervousness ahead of an US rate rise have hurt investor demand in the past three months for the bonds, which carry yields that are among the highest in Asia.
Data from Finance Ministry released late on Thursday showed foreigners held 38.02 percent of Indonesia’s outstanding government bonds as of June 10. The proportion has gradually fallen from a peak of 40.25 percent on Jan. 30.
However, Indonesia’s latest bond auction on Tuesday elicited a strong response, indicating yield-hungry investors may be returning.
“Indonesian bonds have been beaten up a lot,” said Claudio Piron, co-head of currency and rates strategy at Bank of America Merrill Lynch in Singapore.
“It’s like investors are saying we know the risks but, where yields stand at the moment, it is all priced in,” he said.
Tuesday’s bond auction received higher than expected bids worth Rp 25.28 trillion ($1.90 billion) against a targeted Rp 10 trillion. The finance ministry accepted Rp 15 trillion.
The bids were more than double the Rp 11.593 trillion received in the last auction on May 26, and the highest amount since mid-February.
A volatile day
The auction took place on a volatile day in Indonesian markets, when the rupiah hit a 17-year low and the stock index at one point was down 3.2 percent to its lowest level in nearly a year.
Indonesia’s 10-year government bonds are trading at yields of around 8.6 percent, their highest since October 2014.
Mandiri Sekuritas had estimated the June 9 auction would only attract bids of around 5-10 trillion rupiah because of the relatively high cost of hedging rupiah risks.
“Looking at the size, we suspect it’s coming from foreign investors as in the first quarter 2015,” Mandiri said in a note.
In that quarter, fresh foreign bids at bond auctions stood at an average of Rp 8.5 trillion, about one-third of the average total incoming bids.
As Indonesia risks are already priced in, “we should get an improvement in the yields as we approach the year end,” Piron said.
He recommended that investors hedge half their investments in bonds, to be protected from the exchange risk while minimizing hedging costs.