State-controlled, yet listed, financial institution Bank Mandiri plans to issue global bonds with a nominal value of approximately USD $250 million or IDR 3.33 trillion (exchange rate of USD $1 = IDR 13,321) before the end of 2017. Kartika Wirjoatmodjo, President Director of Bank Mandiri, said the company chose global rupiah-denominated bonds because it considers the supply of bonds in the domestic market currently too high. In fact, the supply outpaces existing demand.

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Bonds of Indonesian cement manufacturer Semen Indonesia are subscribed 1.3 times. Semen Indonesia Finance Director Darmawan Junaidi said the company planned to sell IDR 3 trillion worth of five-year bonds (8.6 percent coupon), but demand reached IDR 4 trillion. Most demand originated from domestic financial institutions such as banks, insurance and pension funds.

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Indonesia's 10-year government bond yields are currently around 6.89 percent, or the highest among Asian nations. On the one hand, this makes Indonesian bonds attractive to investors but on the other hand it becomes more costly for the government. How come Indonesian bond yields remain high?

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According to a statement of Indonesia's Finance Ministry, Indonesia raised a total of 100 billion yen (approx. USD $901 million) from the issuance of three, five and seven-year Samurai bonds (yen-denominated bonds) on Wednesday (31/05). The issuance, Indonesia's first public sale of Samurai bonds, was led by Mizuho, Nomura and SMBC Nikko.

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Despite the recent rating upgrade from Standard & Poor's, Indonesia's banking sector will not immediately issue bonds to enjoy (expected) higher demand and lower yields. Based on data from the Financial Services Authority (OJK), per March 2017, the value of bonds issued by Indonesian banks fell from IDR 93.22 trillion in December 2016 to IDR 90.25 trillion (approx. USD $6.8 billion) per March 2017.

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More rupiah and foreign-denominated bonds are expected to be issued in Indonesia now credit rating agency Standard & Poor's (S&P) assigned investment grade status to Indonesia's sovereign rating (BBB-/stable outlook). Yields are expected to decline gradually, while the cost of funds become cheaper. Therefore, it now becomes more attractive for the Indonesian government and local companies (those that also have been assigned the investment grade rating) to issue bonds and collect "cheaper funds".

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Few foreign investors invest in Indonesia's corporate bonds. Foreigners currently only hold seven percent of total outstanding corporate bonds in Indonesia. Salyadi Saputra, President Director of Pemeringkat Efek Indonesia (Pefindo), said this figure is too low. Ideally, it should be between 20 - 30 percent. Moreover, the percentage share of Indonesian corporate bonds that are in foreign hands has fallen over the past year. On 1 January 2016 foreigners still held 7.29 percent of total outstanding corporate bonds in Indonesia.

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The Indonesian government - through its Finance Ministry - cut all ties with US multinational banking and financial services firm JP Morgan Chase after the latter released a report that allegedly "disturbs Indonesia's financial stability". In November 2016 JP Morgan's emerging markets equity strategists double downgraded Indonesia from overweight to underweight without elaborating on the exact motives. The report only stated that emerging markets' risk premiums are plagued by the rising yield of the benchmark US 10-year treasuries.

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Asian markets performed well today on an upbeat US jobs report. Indonesia's benchmark Jakarta Composite Index hit a 13-month high at 5,069.02 points after strengthening 1.97 percent on Monday (11/07), led by financials and consumer staples. In June the US economy added 287,000 jobs, beating forecasts and signalling that the US economy remains reasonably healthy. However, another Fed Funds Rate hike is still believed to be off the table and therefore investors started the week with strong appetite for riskier assets.

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The Finance Ministry of Indonesia announced that it has removed a withholding tax on interest payments on its global sovereign bonds (surat berharga negara, or SBN). Previously this tax was set at 15 percent for Indonesia-based investors and 20 percent for non-resident investors. By removing the withholding tax Indonesia's authorities aim to see its global bond yields fall by 15-20 percent. Indonesia's bond yields have been the highest in Southeast Asia. The removal of the withholding tax is effective retroactively from 1 January 2016.

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Indonesia's global rupiah-denominated government bonds will enter the Bloomberg Barclay's Global Aggregate Index per May 2018. On Wednesday (21/02) Bloomberg announced that Indonesia's global rupiah bonds meet all criteria to become a member of the Global Aggregate Index. This decision shows the degree of rising foreign confidence in Indonesian bonds, hence in the Indonesian rupiah and the Indonesian economy as a whole.

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In the first two weeks of February 2018 foreign investors aggressively sold rupiah-denominated government bonds (in Indonesian: Surat Berharga Negara, or SBN) in the secondary market. Up to 14 February 2018, foreign investors sold IDR 18.69 trillion (approx. USD $1.4 billion) worth of government bonds in February.

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Earlier this week Indonesian state-controlled construction company Wijaya Karya listed its 'komodo bonds' on the London Stock Exchange in the United Kingdom, an event that was witnessed by Indonesian Finance Minister Sri Mulyani Indrawati. But Wijaya Karya was not the first company to issue komodo bonds. On 13 December 2017 toll road company Jasa Marga sold IDR 4 trillion (approx. USD $298 million) in three-year bonds (priced at 7.5 percent).

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Construction company Wijaya Karya (Wika) is conducting a roadshow for its rupiah-denominated global bonds (to be listed on the London Stock Exchange). Wika is following the example of state-controlled toll road operator Jasa Marga that listed its rupiah-denominated global bonds (also known as "komodo bonds") in London on 13 December 2017.

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The offering period of the Indonesian central government's latest series of (conventional) Indonesian Retail Bonds (in Indonesian: Obligasi Ritel Indonesia, or ORI) is almost over (it closes on Thursday, 19 October 2017). Contrary to our earlier report, demand for the ORI014 series seems not as strong as initially expected.

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Two state-controlled companies are planning to issue global rupiah-denominated bonds (often called nasi goreng bonds). Construction company Wijaya Karya, which is listed on the Indonesia Stock Exchange, plans to issue up to USD $500 million of nasi goreng bonds in the second half of 2017. Besides the nasi goreng bonds, the company also plans to sell up to IDR 5 trillion of rupiah-denominated bonds on the domestic market.

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Indonesian state-controlled toll road operator - yet listed on the Indonesia Stock Exchange - Jasa Marga considers to issue rupiah-denominated global bonds as an alternative source to seek funds for investment in toll road infrastructure development. Donny Arsal, Finance Director of Jasa Marga, said the company needs IDR 7 trillion (approx. USD $526 million) for investment in 2017. These funds should be collected through bonds, asset securitization, and bank loans.

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The government of Indonesia plans to sell another series of sharia-compliant government retail bonds (in Indonesian: Sukuk Negara Ritel, abbreviated Sukri). The offering period is planned for 4 February - 2 March 2017. However, Suminto, Islamic Financing Director at the Budget Financing and Risk Management Office within Indonesia's Finance Ministry, did not inform about the indicative target for this issuance. He only informed local media that the target of the bond issuance will be in line with the government's financing needs and existing market conditions.

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The Indonesian government sold €3 billion worth of euro-denominated bonds (Surat Utang Negara, or SUN) on Tuesday (07/06) consisting of €1.5 billion of 7-year tenure bonds with a yield of 2.772 percent and €1.5 billion of 12-year tenure bonds with a yield of 3.906 percent. Combined, the issuance was oversubscribed 1.79 times with a total book order for the dual-trance bonds at €8.36 billion. Robert Pakpahan, Director General of Financing and Risk Management at Indonesia's Finance Ministry, said funds will be used to finance the 2016 budget deficit, which is expected to widen to 2.48 percent of GDP.

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If we look back on the month of April, two important matters - related to the economy - occurred in Indonesia this month: (1) in the first week of April, the Indonesian government managed to complete the Revised 2016 State Budget (RAPBN-P 2016), and, one week later, (2) the central bank (Bank Indonesia) announced it will adopt a new benchmark monetary tool per 19 August 2016 - the so-called seven-day reverse repurchase rate - that is to replace the existing BI rate (which fails to influence market liquidity effectively).

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