Indonesia: How is MSCI spillover weighing on IndoGBs? – DBS

Pressure on Indonesia’s bond market is intensifying as MSCI-driven outflows prolong losses in IndoGBs despite Bank Indonesia’s recent calibrated policy measures, according to DBS Group Research economist Sherilyn Chew. Her assessment points to a bear-steepening yield curve, particularly acute pressure in the belly and caution over corporate issuance. She also views Indonesia’s potential Panda bond sale as a pragmatic, though limited, way to diversify funding sources.

How is the MSCI-driven selloff steepening the IndoGB curve?

"The spillover from the MSCI-driven selloff into Indonesia’s bond market continues to deepen, with IndoGBs extending their losses despite BI’s calibrated policy adjustments last week."

"The persistence of the selloff suggests markets may be placing greater weight on the possibility of further policy action, potentially including a policy-rate adjustment, particularly if IDR pressures persist."

"The IndoGB curve has bear steepened, with the 2Y yield moving slightly above 7%, back to levels last seen in August, while the 10Y has risen to 7.67%, its highest level this year."

"Pressure remains most pronounced in the belly, with 5s10s flattening substantially, while 10s30s has inverted as domestic institutional investors continues to provide some support to the 30Y tenor."

"Should it materialise, this would represent a pragmatic diversification of funding channels and could provide a modest positive signal for sovereign funding access, although it is unlikely, on its own, to alleviate the challenging broader funding conditions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)