Indonesia Bonds Under Pressure as US–Iran Tensions Push Yields Up

Indonesia Bonds Under Pressure as US–Iran Tensions Push Yields Up

Jakarta. Indonesia’s government bond market is bracing for renewed pressure as escalating geopolitical tensions, triggered by the collapse of Iran–US peace talks, push global risk premiums higher and dampen appetite for emerging-market assets.

The fallout is expected to weigh on government bonds (SBN), with yields likely trending upward as investors demand higher compensation amid rising uncertainty.

Economist Yusuf Rendy Manilet of the Center of Reform on Economics (CORE) Indonesia said the key issue is not merely the failed negotiations, but the surge in global uncertainty that could persist in the near term.

“In this kind of environment, it is normal for investors to demand higher yields. So it is unlikely that SBN yields will decline in the short term,” Yusuf told B-Universe.

He explained that heightened geopolitical risks tend to trigger a shift toward safe-haven assets such as US Treasuries, while reducing exposure to emerging markets like Indonesia.

This dynamic could have layered impacts, ranging from potential capital outflows and rupiah pressure to rising energy prices that may fuel inflation expectations.

Yusuf estimates that the 10-year SBN yield, currently around 6.6%, could climb to between 6.65% and 6.80% in the near term.

Still, he noted that the increase remains manageable, supported by relatively solid domestic fundamentals and Bank Indonesia’s active role in maintaining financial market stability.

The pressure, however, is unlikely to be evenly distributed across the yield curve. Investors are becoming more selective, favoring short- to medium-term tenors, which are seen as more resilient.

“Longer tenors are expected to face greater pressure due to higher duration risk amid global volatility,” he said.

Despite external headwinds, demand for SBN is expected to hold, underpinned by domestic investors and Bank Indonesia’s presence in the market.

However, the government may need to accept higher yields as a consequence of elevated global uncertainty.

“With these dynamics, the domestic bond market is expected to remain in an adjustment phase in the short term, as investors stay highly sensitive to geopolitical developments and the direction of global monetary policy,” Yusuf concluded.