"It's a big wave out of the high yielders," said Stephen Innes, Asia-Pacific market strategist at AxiCorp. "We're just seeing a complete de-risking of every asset." Years of low and falling interest rates around the globe had driven billions of dollars in foreign money into countries such as Indonesia and Mexico in search of higher yields.

However, the resultant heavy presence of foreigners in Indonesia's debt market and relatively low foreign exchange reserves have left it vulnerable as investors seek to reduce risk en masse. The yield on benchmark 10-year bonds, which rises when prices fall, jumped 17 basis points to 6.887%. It has risen almost 30 basis points in two days. The currency has lost 5% against the dollar in little more than a week.

"Risk sentiment is fragile, and countries where risk premia was too low are more affected, with Indonesia being one of them," said Ashish Agrawal, head of FX and emerging markets' macro research for Asia at Barclays. Flows point to a massive liquidiation of foreign holdings, which comprise a bit more than a third of Indonesian debt. Non-resident investors had already sold 16.43 trillion rupiah ($1.2 billion) of tradable government bonds over the first three days of the week, according to the latest government data.

Copyright Reuters, 2020