The government bond yield curve in Indonesia continued to flatten between end-June and end-September, as bond yields fell across all tenors except at the very short-end of the curve. By end-October, bond yields had fallen across all tenors compared with end-September, resulting in the shifting of the entire government bond yield curve downward. Yields at the very short-end fell the most, shedding 71 basis points (bps), while yields from the 2-year maturity through the 10-year maturity fell 52 bps–65 bps. Yields at the long-end of the curve fell 38 bps– 46 bps. The yield spread between the 2- and 10-year maturities narrowed to 100 bps at end- October, compared with 135 bps at end-June and 102 bps at end-September. The overall bullish trend in Indonesia’s government bond market can be viewed as a positive response to measures taken by Indonesian authorities.

The size of Indonesia’s local currency (LCY) bond market shrank on both a y-o-y and q-o-q basis in 3Q11. Total bonds outstanding stood at IDR982.4 trillion (US$110 billion) at end-3Q11, after rising to IDR1.0 quadrillion in 2Q11.

As of end-September, outstanding LCY government bonds had fallen 5.6% y-o-y to IDR847.8 trillion. Negative growth in LCY bonds in 3Q11 was mainly attributed to the significant drop in the stock of central bank bills known as Sertifikat Bank Indonesia (SBI). The stock of central government bonds (treasury bills and bonds issued by the Ministry of Finance) posted modest growth on a y-o-y basis. Meanwhile, corporate bonds continued to post double-digit growth in 3Q11 on a y-o-y basis, rising 30.5% to IDR134.6 trillion. On a q-o-q basis, however, growth in corporate bonds was only a marginal 2.0%.

On 30 September, BI issued new regulations governing export proceeds and foreign debt withdrawals. Under the new policies exporters will be required to transfer their proceeds from offshore banks into domestic banks within a period of 3 months after the date included on the Export Declaration Form. This policy will become effective on 2 January 2012. During the transition period exporters will be given up to 6 months from the date on the Export Declaration Form to comply with the new measure.

Another new regulation issued by BI requires debtors to conduct their foreign borrowing through domestic banks. The new regulations apply to borrowing in cash, non-revolving loan agreements, and debt securities.