Bond Market Shadowed by Global Uncertainty, Investors Should Exercise Greater Caution

The Indonesian bond market is expected to continue facing volatility amid global uncertainty and evolving domestic challenges. This condition is seen to require investors to exercise greater caution in determining investment strategies, including in managing bond portfolios. Lilis Setiadi, CEO of PT Batavia Prosperindo Asset Management, said that global dynamics remain the main factor driving movements in the bond market. She said this situation fuels uncertainty in global financial markets and affects investor appetite for assets in developing countries, including Indonesia. ‘This global uncertainty is causing foreign investors to scale back their interest in Indonesian government bonds,’ Lilis said at the SMBC Indonesia Economic Forum 2026 in Jakarta on Tuesday (19 May 2026). She explained that wars in several regions and the potential rise in inflation due to global supply chain disruptions further heighten pressure on the bond market. Amid these conditions, foreign ownership of Indonesian government bonds, or fixed-rate (FR) securities, has continued to decline compared with the pre-Covid-19 period. Lilis stated that foreign ownership of government bonds is now around 12.7 percent, far below the near-40 percent level seen before the Covid-19 pandemic. She said the decline in foreign ownership reflects a shift in global investors’ behaviour towards developing-market assets amid high uncertainty. She also noted that the government’s revenue position is not optimal, which markets watch; revenue under target, particularly from tax collection, could influence investor perceptions of fiscal conditions. On the other hand, aggressive government spending is also cited as a factor to watch because it can place additional pressure on financial markets. Nevertheless, Lilis believes that the decline in foreign ownership of government bonds does not wholly carry negative implications. ‘The risk of massive bond sales by foreign investors and rupiah volatility is more limited,’ she said. She explained that during periods when foreign ownership was still very high, the domestic bond market was more vulnerable to outflows of foreign capital. When global investors withdraw large sums, pressure on bond prices and the rupiah can rise significantly. Against these challenges, Lilis regards government bond yields in Indonesia as still relatively competitive relative to other developing countries. She noted that the 10-year Indonesian government bond yield is currently around 6.8 percent, compared with about 7 percent for India’s government bonds and around 7.2 percent for the Philippines.