JAKARTA, NNC - Short-term risks continue to overshadow the Southeast Asian bond market. This is due to a faster-than-expected increase in US interest rates, aka the Fed Fund Rate, and increasing global trade tensions.
The condition of tightening liquidity exacerbated the risk of the rapid growth of private debt in the region in recent years. Regional currency depreciation and capital outflows pose further risks to regional financial stability.
Nevertheless the Asian Development Bank (ADB) said that the Indonesian bond market is the fastest growing in the region.
In the third quarter, it posted 5.9 percent quarterly and 13.9 percent in the annual period to USD185.0 billion in increased sales of government bonds.
"This followed the warm second quarter due to failed auctions because the market sought higher yields. The government bond market in the July to September period grew 6.2 percent on a quarter and 13.5 percent year on year to USD157.0 billion. Corporate bond market went up 4.1 percent quarter to quarter and 16.5 percent year on year to USD28.0 billion," said ADB Chief Economist Yasuyuki Sawada in an official statement in Jakarta on Wednesday (11/21/2018).
He explained bond yield growth during this quarter was in line with the rise in Bank Indonesia 7-day reverse repo rate which was intended to maintain investor appetite.
"The government bond market is very sensitive to global market developments because foreign investors comprise the largest group of investors in government bonds," Sawada explained.
He added concerns about emerging markets were looming, but basically strong Asian fundamentals had to attract investors back to the local currency bond market in the region.
"However, policy makers in the region must monitor developments and maintain safeguards against potential shocks," Sawada concluded.