Panda Bond Issuance Relevant Amid US Dollar Market Dynamics, Says Economist

Jakarta (ANTARA) - PermataBank Chief Economist Josua Pardede assessed that the Indonesian government’s plan to issue Panda Bonds is relevant at a time when the United States (US) dollar market is facing pressures from high interest rates, a strong dollar, and geopolitical uncertainty. “The main advantage of Panda Bonds is not merely obtaining funds in renminbi, but reducing Indonesia’s dependence on a single market, a single currency, and a single group of investors,” Josua said in Jakarta on Thursday. He explained that Panda Bonds also give Indonesia direct access to banks, insurance companies, pension funds, and fund managers in China’s domestic market. If this issuance is successful, the government could establish a benchmark yield curve for Indonesian debt in renminbi, which would later facilitate subsequent issuances by the government, state-owned enterprises, or Indonesian companies with business ties to China.

According to Josua, the strategic benefits are quite strong, as China is Indonesia’s largest non-oil and gas export destination, reaching USD 28.54 billion during January–May 2026. Bank Indonesia is also expanding renminbi-rupiah transactions and providing incentives for local currency use in trade and investment. However, he cautioned that issuing in renminbi does not eliminate exchange rate risk but merely shifts some of it away from the US dollar. He noted that while Indonesia’s substantial trade with China supports the formation of a renminbi market, it does not automatically provide a natural hedge for the state budget, as most government revenue remains in rupiah. “Therefore, the diversification benefit is only truly strong if the government has adequate renminbi cash management, swap lines, or renminbi payment needs,” Josua explained.

He added that the potential for lower nominal borrowing costs is significant. Experience with Dim Sum Bonds shows that nominal renminbi funding costs are much lower than US dollar funding costs. In October 2025, Indonesia issued 5- and 10-year Dim Sum Bonds with yields of 2.50 percent and 2.90 percent, respectively. A subsequent issuance in February 2026 achieved yields of 2.45 percent for 3-year and 2.65 percent for 5-year bonds. In comparison, US dollar global bonds issued in January 2026 carried yields of 4.40 percent for 5-year and 5.00 percent for 10-year bonds. The nominal yield differential for comparable tenors thus reached around 1.75–1.95 percentage points. An AAA rating on China’s domestic scale could help suppress the additional yield spread demanded by investors. However, Josua stressed that this domestic AAA rating is not directly comparable to an international AAA rating. He reminded that the government should not only compare nominal coupons but also calculate the all-in cost after considering underwriting fees, documentation costs, renminbi-to-rupiah conversion costs, and hedging costs. If the entire issuance is swapped back into rupiah, much of the nominal cost advantage could diminish. “Therefore, the government should set a minimum net savings threshold, for example, around 0.20–0.30 percentage points after all costs and hedging, before deciding to issue in large size. If the net savings are smaller, the issuance should remain limited in size for diversification and market-building purposes, not to replace US dollar bonds on a large scale,” Josua concluded.