Indonesia expects further inflows from foreign investors into its debt market after news that local currency bonds will be added to a global bond index, prompting fund managers to add them to their portfolios. Indonesian rupiah-denominated bonds will be eligible for the widely used Bloomberg Barclays' Global Aggregate Index, which covers investment-grade bonds, starting June 1, 2018, Bloomberg said in a statement.
"Having government bonds in the global index raises greater confidence," Finance Minister Sri Mulyani Indrawati told reporters on Wednesday. Fifty rupiah-denominated government bonds totaling $151.3 billion market value as of January 31, 2018 will be included in its Global Aggregate and Global Treasury projected universes in early May 2018 and contribute to index returns starting June 1, 2018, Bloomberg statement said.
The yield on benchmark 10-year government bonds fell to 6.443 percent on Wednesday from 6.467 percent the previous day, while the rupiah gained as much as 0.3 percent.
"Historically, it can show between $5 billion to $7 billion of capital inflows in terms of demand for bonds which have already been included in the index," she added, hoping the potential demand would also help Indonesia gain more competitive pricing for future bond sales.
Foreign investors already hold 40.4 percent of Indonesia's 2,119 trillion rupiah of outstanding rupiah-denominated government bonds. That compared to a 39.8 percent ownership at the end of 2017.
Indonesia regained its investment grade from Fitch in late 2011 and from Moody's Investors Service a month after that. Standard and Poor's Global Rating finally upgraded Indonesia to investment grade in May last year, sending the rupiah and the stock market soaring, while Fitch raised its ratings for Indonesia a notch above its lowest investment grade in December.
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