Jakarta. Indonesia’s sovereign bond market is expected to retain a constructive outlook in 2026, underpinned by stable domestic fundamentals, an accommodative monetary stance, and Indonesia’s yield advantage over regional peers, analysts said.

Bond yields are widely seen to have room to ease further this year, while investor appetite for government bond auctions in January 2026 is projected to remain solid.

Ahmad Nasrudin, a fixed-income analyst at  Indonesia’s independent credit rating agency (Pefindo), said global investors are closely weighing competitive returns against credit fundamentals, noting that Indonesian government bonds (SBN) continue to offer higher yields than other BBB-rated peers such as the Philippines and Thailand.

“Indonesia’s SBN remains competitive because it offers higher yields than peer countries,” Ahmad said. “In addition, fiscal discipline that keeps the government’s debt ratio at 40.48%, far below India, the Philippines, and Thailand, which is a strong plus for international investors.”

He said the sustainability of foreign inflows will largely hinge on the Federal Reserve’s easing cycle, with US policy rates expected to be cut to around 3.5%. With Indonesia’s inflation anchored within the 2.5% ±1% target range, he said the scope for further SBN yield compression remains open.

Ahmad projects the 10-year SBN yield to decline toward 5.8% by end-2026, from an average of 6.02% in 2025, driven by accommodative policy from Bank Indonesia and easing inflationary pressures.

“Lower global yields and expectations of rate cuts by the Federal Reserve will put downward pressure on domestic yields,” he said. “From a fiscal perspective, lower yields will reduce the government’s funding costs and could generate capital gains for investors.”

In the near term, he sees yields moving within a 6.15%–6.30% range. Between Jan. 12 and Jan. 14, 2026, foreign investors recorded net sales of Rp 8.15 trillion ($480.39  million) amid rising global geopolitical tensions.

Despite that, demand at January 2026 government bond auctions is expected to remain firm, with bid-to-cover ratios estimated at 1.5–2.5 times. Total bids could reach Rp 49.5 trillion to Rp 82.5 trillion, exceeding the government’s financing needs.

Ahmad cautioned that asset rotation toward equities or corporate bonds could limit demand aggressiveness. However, he said heightened global uncertainty is still likely to keep government securities in favor as a safe-haven asset.

“Even with potential asset rotation, global uncertainty means government bonds will remain a safe haven for investors,” he said.

Long-dated series such as FR0107 (2045) and FR0106 (2040) are expected to draw strong interest due to their top coupon of 7.125%, while the short-term SPN01260221, maturing in February 2026, is seen as attractive for investors prioritizing near-term liquidity.

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