Indonesia's state bonds are expected to remain a popular investment instrument in the second quarter of 2016 - perhaps even the most popular instrument - due to stable and more attractive yields compared to other investment instruments. Although the Indonesian rupiah and the benchmark stock index (Jakarta Composite Index) have both strengthened markedly over the past week (particularly supported by higher crude oil prices), the global economy remains plagued by uncertainties (China's economic slowdown and possible higher borrowing costs in the USA). Analysts say that in this context investor appetite for Indonesian bonds increases.

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The Indonesian rupiah continues to appreciate sharply. By 13:15 pm local Jakarta time on Friday (04/03), Indonesia's currency had appreciated 0.96 percent to IDR 13,105 per US dollar (Bloomberg Dollar Index), its strongest level since May 2015. Meanwhile, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.76 percent to IDR 13,159 per US dollar. What explains this strong performance of the rupiah?

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In line with the overall trend in Asia, the Indonesian rupiah continued to appreciate against the US dollar on Wednesday (02/03). Based on the Bloomberg Dollar Index the rupiah strengthened 0.34 percent to IDR 13,301 per US dollar, touching a four and a halve-month high and recording its longest winning streak since 2010. Over the past ten trading days the rupiah has been appreciating against the greenback. What made the Indonesian rupiah strengthen today?

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Although a huge amount of debt paper will mature in 2016, there is few concern that the Indonesian government and the nation's private companies will fail to meet their debt obligations. Per 17 February, total outstanding debt paper that is to mature in 2016 stands at IDR 320.9 trillion (approx. USD $23.8 billion), consisting of IDR 268.1 trillion (approx. USD $19.9 billion) of government bonds (Surat Utang Negara or SUN) and IDR 52.8 trillion (approx. USD $3.9 billion) of private sector corporate bonds. Why are there no major concerns about Indonesia's debt situation in 2016?

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Indonesia's Finance Ministry will sell rupiah-denominated Islamic bonds (known as Sukuk) on Tuesday (26/01). The ministry set an indicative target of IDR 4 trillion (approx. USD $288 million). Proceeds from the bond sale will be used to finance the government's budget deficit. This deficit is estimated to reach 2.15 percent of gross domestic product (GDP) in the 2016 State Budget.

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The Indonesian government will engage in front loading, issuing 61 percent of next year's total planned state bonds - worth IDR 532.4 trillion (approx. USD $38.6 billion) - in the first half of 2016. Proceeds are used to finance the 2016 State Budget. Earlier, on 2 December 2015, the government had already sold USD $3.5 billion worth of bonds to cover a shortfall in the 2016 State Budget, deliberately ahead of the possible US interest rate hike in mid-December (as this move is expected to reduce investor appetite for emerging market assets).

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New York-based credit rating firm Moody’s Investors Service expects global economic factors to have less of a negative impact on Indonesian companies in 2016. In its latest report titled "Non-Financial Corporates - Indonesia: 2016 Outlook - Corporate Profits under Pressure but Likely to Stabilize" it states that amid stabilizing economic growth and the recently unveiled government stimulus packages, companies should manage to improve their corporate performances in 2016.

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On 22 November 2015, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website over the last seven days. Most of the topics involve economic matters such as updates on Indonesia's trade balance, the interest rate environment, infrastructure development, global bonds, IPOs on the Indonesia Stock Exchange, Islamic banking, and much more.

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The government of Indonesia plans to issue (foreign currency-denominated) global bonds worth USD $10 billion to cover a shortfall in the 2016 State Budget. These global bonds would be part of a total of IDR 510 trillion (approx. USD $37 billion) worth of bonds that the government plans to sell in 2016. Scenaider Siahaan, Director of Borrowing Strategy at Indonesia's Finance Ministry, said about USD $4 billion of these global bonds are US dollar-denominated. For such bonds, the government usually appoints Bank of America Merrill Lynch, CIMB, Citigroup, and HSBC as book-runners.

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The Indonesian government will increase retail bond issuances in 2016. Robert Pakpahan, General Director of Debt Management at the Ministry of Finance, said the government will issue conventional retail bonds, known as ORI (Obligasi Negara Ritel Indonesia), twice in 2016. Furthermore, the government plans two rounds of sharia-compliant government retail bond (Sukuk Negara Ritel, or abbreviated Sukri) issuances next year. These bonds are only available to domestic investors.

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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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One of Indonesia's long standing companies - and also one of the most controversial ones in Indonesia - Bakrie & Brothers plans to offer part of its shares to creditors Mitsubishi Corporation, Glencore International, and Eurofa Capital Investment in a debt for equity swap. This plan is part of the company's efforts to restructure USD $453 million worth of debt through mandatory convertible bonds. Indra Ginting, Chief Investor Relation Officer at Bakrie & Brothers, confirmed the company owes Mitsubishi USD $150 million, Glencore USD $200 million, and Eurofa Capital USD $103 million.

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In the past two weeks, two of the big international credit rating agencies released new reports about Indonesia's fiscal situation. Both agencies affirmed Indonesia's sovereign debt rating: Fitch Ratings kept Indonesia at BBB-/stable (investment grade class) and Standard & Poor's (S&P) maintained Indonesia at BB+/positive (highest junk level, one notch below investment grade). S&P's decision to keep Indonesia within the junk level category was met with disappointment among investors and Indonesian government officials but perhaps not that surprisingly.

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There is strong demand for Indonesia's sharia-compliant government retail bonds (in Indonesian: Sukuk Negara Ritel, abbreviated Sukri). Since the launch of series SR-008 on Friday (19/02), a number of sales agents have run out of quota. These financial institutions now request additional quota from the government. The three year SR-008 series carries a fixed coupon of 8.3 percent per year (and is tradable on the secondary market). The government of Indonesia targets to collect up to IDR 30 trillion (approx. USD $2.2 billion) in funds from the issuance. Sukri bonds are only available to Indonesian citizens.

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Some concern has been raised about the inflow of foreign 'hot money' into Indonesia amid accomodative monetary policies conducted by central banks of the Eurozone and Japan (the latter implemented negative interest rates in late-January). The world's carry traders are now seeking cheap funds in advanced economies and invest these funds in assets that have attractive returns such as Indonesian bonds and stocks. Indonesia's benchmark interest rate (BI rate) is still relatively high at 7.0 percent after a 25 basis points cut at Bank Indonesia's February 2016 policy meeting.

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American financial services company Standard & Poor's warns that defaults by Indonesian companies are a serious threat over the next 18 months given their eroded balance sheets amid the country's current economic slowdown. The warning came after Indonesian mobile phone retailer Trikomsel Oke announced plans to restructure about USD $155 million worth of debt as it may not be capable to meet obligations indefinitely.

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Indonesian food company Tiga Pilar Sejahtera, a market leader in the country’s dry vermicelli and dry noodles segments, considers to acquire two food companies in Malaysia and Vietnam in a move to expand business beyond the Indonesian borders. Sjambiri Lioe, Finance Director at Tiga Pilar Sejahtera, said that the company (which is listed under ticker symbol AISA) has set aside a total of USD $80 million for this acquisition. He refrained from mentioning the names of the targeted Asian companies.

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In an attempt to strengthen the domestic investor base and to meet financing of the Revised 2014 State Budget (APBN-P 2014), the government offers Indonesian Retail Government Bonds (Obligasi Negara Ritel Indonesia, abbreviated ORI) again. This is the 11th time, the government issues ORI bonds since its first launch in 2006. The ORI series ORI011 is offered in the period 1-16 October 2014 with a coupon rate of 8.5 percent and a tenor of three years. The minimum allowed order is IDR 5 million and the maximum IDR 3 billion per individual.

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US Federal Reserve Chairwoman Janet Yellen reminded global investors to prepare for a sooner-than-expected US interest rate hike (Fed Funds Rate, FFR) provided that the economy of the USA - the world’s largest economy - continues its improving trend. In fact, speculation has emerged that the FFR will be raised before the end of 2014 although Yellen stated more than once that the ‘close-to-zero’ interest rate environment would be maintained for a considerable period after the US bond-buying program (quantitative easing) has ended.

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