While at the end of January 2018 foreign investors controlled IDR 869.8 trillion (approx. USD $64 billion) of SBN, equivalent to 41.3 percent of total outstanding government bonds, the figure had fallen to IDR 851.1 trillion (approx. USD $62.6 billion) per 14 February 2018 (or 40.4 percent of the total) two weeks later.

This selloff in bonds is related to the turmoil we saw in global markets in early February when investors became increasingly concerned about the impact of improving US economic data (particularly inflation) on the monetary policy approach of the Federal Reserve (which may decide to speed up the tightening of its monetary policy).

The subsequent selloff (which involved both capital outflows from emerging markets and an outflow from developed and developing stocks into bonds) also affected Indonesia's bond market. Still, so far this year, foreign investors recorded a net buy of IDR 14.93 trillion (approx. USD $1.1 billion) in Indonesian bonds. This is much better than foreign investors' IDR 6.44 trillion net sell of Indonesian stocks over the same period.

Anil Kumar, Fixed Income Analayst at Ashmore Asset Management Indonesia, said foreign ownership of Indonesian bonds remains high despite the recent selloff. This is both a blessing and curse. When the domestic and global economy is in a fine state, then it is a blessing because foreign inflows in bonds help to narrow Indonesia's current account deficit, support the value of the rupiah, and - more generally - support the stability of the Indonesian economy.

However, in times of global shocks, Indonesia is plagued by a high degree of capital outflows as foreign investors rapidly move their funds out of the emerging markets (into safe havens).

Kumar added that this situation - the big portion of Indonesian bonds being in foreign hands - cannot be changed unless domestic investors significantly raise their investment in Indonesian bonds. This would require a process of financial deepening in Indonesia.

However, soon - when global economic conditions are conducive again - foreign investors are expected to come back to Indonesian bonds as Indonesian yields remain attractive. Up to the end of last week the yield on Indonesia's 10-year bond reached 6,426 percent, up 10.7 basis points since the year-start.