Indonesia's Government Bond Market Outlook for 2026

Increased Issuance and Yield Expectations

PT Pemeringkat Efek Indonesia (Pefindo) has projected that Indonesia's government bond yield will decline in 2026 despite an anticipated increase in bond issuance. The Chief Economist at Pefindo, Suhindarto, stated that the government plans to issue bonds worth Rp 1,585 trillion in 2026, which includes both new issuance of Rp 749.19 trillion and maturing debt of Rp 836.2 trillion. This represents a significant increase from the 2025 target of Rp 1,342 trillion.

Factors Driving Increased Issuance

Two primary factors are driving the expected increase in government bond issuance. First, the widening budget deficit is necessitating additional funding. Second, there's a higher amount of maturing debt in 2026 compared to 2025. Despite these factors potentially increasing supply, Suhindarto remains optimistic that domestic demand will remain robust enough to absorb the increased issuance without causing yields to rise significantly.

Market Implications

The prediction of declining yields is based on the assumption that domestic investors will continue to be the primary buyers of Indonesian government bonds. This domestic demand is seen as a crucial buffer that will prevent yields from rising despite the increased supply. Suhindarto noted that as long as domestic demand remains strong, yields will continue to trend downward.

Conclusion

The expected decline in government bond yields in 2026, despite increased issuance, reflects Pefindo's confidence in Indonesia's domestic investor base. The government's ability to manage its debt through domestic financing will be crucial in maintaining market stability and keeping borrowing costs under control.