Asia Pacific Credit Update: Cross-asset view on Indonesia and the quasi-sovereign universe

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Asia Pacific Credit Update: Cross-asset view on Indonesia and the quasi-sovereign universe

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Asia Pacific Credit Update

Cross-asset view on Indonesia and the

quasi-sovereign universe

Rating Change - Credit

Sentiment has stabilized, but still cautious overall 14 July 2026

The broad sense is that the worst of 2Q26 is now behind us, with capital flows into Global Emerging Markets | Corporate

government bonds turning positive (Exhibit 2). Nevertheless, overall sentiment remains Credit

cautious, reflecting uncertainties surrounding (1) broader policy direction, (2) potential Asia

actions by rating agencies and index providers, and (3) current account outlook. Xiang Gao, CFA

Research Analyst

On fiscal policy, we expect headline fiscal deficit to remain within 3% of GDP in 2026- Merrill Lynch (Singapore)

27. However, we anticipate a greater reliance on below-the-line financing and off- +65xiang.gao@bofa.com6678 0941

balance sheet financing to support policy priorities. On monetary policy, we expect Jing Peng

further policy rate hike to be calibrated, as BI balance stability considerations against the Research Analyst

Merrill Lynch (Hong Kong)

risk of excessive tightening in domestic liquidity conditions (Exhibit 3). (KW. Ang) +852 3508 3105

jing.peng2@bofa.com

Sovereign bonds: Higher yields on local bonds Economics

Kai Wei Ang

In local currency bonds, we see some risks being priced in with light foreign positioning ASEAN Economist

and well-flagged fiscal push for growth. Even with lower tail-risks, broader fiscal Merrill Lynch (Singapore)

+65 6678 5518

concerns remain and funding needs are too large. Risks are tilted towards higher yields kaiwei.ang@bofa.com

as external environment may remain tough this year (with stronger USD and Fed hikes), FX and Rates