“Near-term risk-reward favors the short end of the curve” on further prospective BI rate cuts, said Wee Khoon Chong, senior Asia Pacific market strategist at BNY. “Investors may be reluctant to increase duration given the civil unrest and cabinet reshuffle, while long-dated bonds are also at risk from the global selloff in developed-market rates,” he added.
The gap between yields of Indonesia’s short- and long-dated bonds is poised to increase as concerns over the country’s fiscal outlook persist.
The spread between two- and 10-year bond yields climbed to about 114 basis points last week, the most since January 2023, although the gap has narrowed slightly in the past few days. Shorter-dated notes have rallied as Bank Indonesia lowered borrowing costs, while longer maturities remain vulnerable to risk of budgetary shortfall, which may lead to more outflows.
