Bloomberg Global funds have just scooped up the most Indonesian bonds in over a year, a move that may signal a revival of interest in emerging Asian debt.
The largest one-day inflow since August 2021 was recorded in the Rupiah sovereign notes, which were in $467 million on Monday, the largest one-day inflow since August 2021, according to government data. In November, the most purchases in three years were $1.5 billion, which was the most in a single year.
Indonesian bonds are a barometer of risk appetite and demand reflects the improvement of the macro outlook as the Federal ReserveFederal Reserve signals a slower pace of rate hikes. There's scope for developing Asian securities after a relaxation of Covid controls in China and easing price pressures in the region.
If there is a more durable improvement in the global risk backdrop, there will be room for global EM bond funds to extend their position in the Indonesia bond market, said Jennifer Kusuma, senior rates strategist at Australia New Zealand Banking Group Ltd. Global exposure to EM local markets has decreased this year, according to flow data. Money managers had pulled $10.2 billion from Indonesian debt in the first 10 months of the year, a record for the period, according to data from Bloomberg from 2010 onwards. Bond markets worldwide suffered from a rout after the Fed hiked rates aggressively, with the benchmark rupiah yield going to the highest in over two years in October.
The narrative has reversed as the Fed has softened its rate-hike stance. In November, the index of Indonesia bonds returned a 2.3% return to dollar-based investors, the highest since August 2021.
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