Indonesian Government Bond Yields Forecast to Drop in 2026, Affecting Pension Fund Returns

Economic Factors Driving Yield Decline

PT Pemeringkat Efek Indonesia (Pefindo) has projected that Indonesian government bond yields will experience a decline in 2026. This forecast is primarily attributed to two key factors: the anticipated increase in the issuance of State Securities (SBN) and the potential for further interest rate reductions by Bank Indonesia (BI). The increased supply of government bonds is expected to drive down yields as demand remains steady or increases.

Impact on Pension Funds and Fixed Income Investments

The expected decline in government bond yields has significant implications for pension funds and other fixed-income investors. Bambang Sri Mulyadi, Expert Staff of the Indonesian Pension Fund Association (ADPI), noted that the decrease in BI's benchmark interest rate would likely be followed by a reduction in government bond coupon rates as well as corporate bond rates. This trend could potentially erode the returns on pension funds that are heavily invested in fixed-income securities.

Monetary Policy and Market Dynamics

The potential for further interest rate cuts by Bank Indonesia is a crucial factor in this forecast. As BI continues its accommodative monetary policy stance, it is likely to maintain downward pressure on interest rates across the yield curve. This environment presents both challenges and opportunities for investors and financial institutions managing long-term liabilities and investment portfolios.