JAKARTA — Indonesia's benchmark 10-year bond yield rose 10 basis points to 7.45 percent, nearing its highest level since 2022. The five-year yield closed three basis points higher. The move reflects market pricing for additional Bank Indonesia tightening.
The rupiah weakened 0.2 percent against the dollar. The benchmark stock index closed 0.3 percent lower, paring intraday losses of as much as 2 percent. Indonesian assets have seen heavy outflows this year.
Investor confidence has eroded under President Prabowo Subianto's interventionist agenda and rising fiscal spending, while a strained balance of payments — pressured by high oil prices — complicates the outlook further.
Bank Indonesia has said it will allow bond yields to rise to support the rupiah and attract foreign capital. The currency has dropped to a series of record lows.
Jessica Tasijawa, a fixed-income analyst at PT Mirae Asset Sekuritas Indonesia, said bond yields have room to move higher until rupiah pressure stabilizes. Tasijawa expects Bank Indonesia to implement an additional 25 to 50 basis points of rate hikes next week.
The selloff followed a brief reprieve Wednesday, when officials sought to reassure foreign investors. U.S. Treasury yields also gained on bets for Federal Reserve tightening, souring sentiment toward Indonesian bonds.
Adra Wijasena, a senior fixed-income analyst at PT Shinhan Sekuritas Indonesia, said the rise in U.S. Treasury yields was a direct factor weighing on Indonesian bond sentiment.
Energy and basic materials stocks were among the largest drags on the benchmark index Thursday. The index has fallen more than 30 percent this year, the steepest decline among major global benchmarks.
The rupiah has weakened about 7 percent against the dollar this year, making it Asia's worst-performing currency. It breached the 16,000 per dollar psychological level last week, hitting multiple record lows.
Bank Indonesia Governor Perry Warjiyo has said his primary focus is currency stability, to be achieved by boosting yields and drawing foreign fund flows. Further rate hikes, however, risk accelerating outflows from the stock market.
Analysts widely expect Bank Indonesia to raise rates again at its meeting next week, which would add to the 75 basis points of tightening already delivered since May.
Rising oil prices complicate Indonesia's outlook further, threatening to widen the trade deficit, stoke domestic inflation and pressure the nation's credit ratings.
Thu Ha Chow, head of fixed income for Asia at Robeco, said confidence is easy to lose and takes longer to regain, but added the market is seeing the beginnings of a turnaround. Governor Warjiyo and Finance Minister Purbaya Yudhi Sadewa recently pledged to maintain market liquidity and boost bond yields in a joint parliamentary briefing.
