HSBC sees stronger bond market this year

Rendi A. Witular, The Jakarta Post, Jakarta

The country's bond market this year is predicted to grow by between 20 percent and 50 percent due to strong demand from local and overseas investors, an expert at HSBC Bank said.

HSBC director of debt market Radianto Kusumo said on Thursday that local investors were now seeking better return-on-investment alternatives amid declining interest rates of bank time deposits and the volatile stock market.

"Investors are running out of safer and more lucrative investment options, thus they prefer to put their money into this sector. Bond volume and transactions for this year will surge by at least 20 to 50 percent," said Radianto.

According to data from the Surabaya Stock Exchange, the market capitalization of the domestic bond market last year jumped to around Rp 419.49 trillion (US$47 billion) from Rp 83.48 trillion as both companies and the government rushed to issue bonds amid strong investor sentiment.

The surging bond market, analysts said, had also become one of the main factors causing the recent surge in the exchange rate of the rupiah against the U.S. dollar, which earlier this week strengthened to a 10-month high of around Rp 8,600 per dollar.

As foreign investors turn their eye to domestic bonds offering interest rates of 10 percent to 18 percent, compared to U.S. bonds offering 4 percent, they bring in dollars and exchange them for rupiah.

The government had also been successful with its Rp 2.7 trillion bond issue last month, which was three times oversubscribed.

However, despite the booming bond market, some are worried particularly about the lack of supporting regulations.

Radianto said that fund managers would face difficulties if investors rushed to cash in before the bonds reached maturity.

He said that this would create huge losses for fund managers, so the authorities should sit together with the market players to design a better mechanism.