Asia FI & FX Strategy Viewpoint: Indonesia Bonds – Gauging valuation buffer

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Asia FI & FX Strategy Viewpoint: Indonesia Bonds – Gauging valuation buffer

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Asia FI & FX Strategy Viewpoint

Indonesia Bonds – Gauging valuation

buffer

Bonds – Gauging valuation buffer… 06 July 2026

Our Asset Manager Tracker indicates that investors have been underweight Indonesia GEM FI & FX Strategy

bonds for a while. These positions have benefitted from a sharp sell-off in IndoGBs this Asia

year and investors are now looking at valuation more closely to gauge levels where the

risks can be considered as well-priced. We look at valuation metrics to put IndoGB yields Abhay Gupta Emerging Asia FI/FX Strategist

in historical perspective and discuss how the cyclical risks are tilted within those ranges. Merrill Lynch (Singapore)

+65 6678 0427

… for inflation, fiscal and external risks abhay.gupta2@bofa.com

We compare three spreads in historical context – real rates to gauge inflation risks,

curve shape for fiscal risk-premium and spread over global rates to manage capital flows For a full list of our open trade

against external risks. On the surface, comparison with the last 5y ranges shows some recommendations, as well as our

value emerging in IndoGB as yields move towards the higher end of those ranges. But trade recommendations closed over

we believe that IndoGB spreads settled in a narrower range over the last few years the past 12 months, please see

(2022-2025) primarily due to an improvement in the twin deficits and low macro data Global Emerging Markets Weekly:

volatility. Lower dependence on external funding for both fiscal and external deficits 1,000 investors on EM 03 July 2026

marked a decoupling of Indonesian rates from USTs during this period.

That trend has reversed now as expansionary fiscal policy brought back dependence on