XA Market Update | Indonesia 10-Year Bonds  (SUN 10-Years) — Darkest Before Dawn

 

By Ezaridho Ibnutama & Graceline Melinda

06-Feb-2026

 

 

 

We forecast Indonesia’s 10-Year Bonds Yield to remain resilient at 6.5-6.6% by the end of 2026. While Moody’s has downgraded Indonesia’s outlook from stable to negative, we are of the opinion that the Indonesian government will implement reforms to self-correct itself for higher prudency and maintaining predictability throughout the current administration.

 

 

 

🔹 PART I : Second Stress Test To The Indonesian Capital Markets

Moody’s Raises Concerns On New Administration’s Prudency

 

• Indonesia’s First Negative Outlook From Moody’s. While Moody’s has kept their rating for Indonesia at Baa2 for both the foreign currency senior unsecured Medium-Term Notes (MTNs); senior unsecured shelf program ratings; as well as local and foreign currency senior unsecured ratings, Moody’s has downgraded the outlook for the Government of Indonesia’s rating to negative from stable. This is the first negative outlook Moody’s has given on the government.

 

• Pointing To Unpredictability. Moody’s has cited that the current Baa2 rating is supported by Indonesia’s long-standing prudential fiscal policies helmed by the previous Ministry of Finance Sri Mulyani Indrawati. Under the current Finance Minister Purbaya, Moody’s stated the policies of less predictability and coherence in policy making has the potential of diminishing Indonesia’s investment attractiveness and increasing borrowing.

 

 

Anticipated Government Response, But May Not Stop Other Agencies From Following

• Assuming Aggressive Fiscal Reforms. As with the government’s response after MSCI announced a potential downgrade of the Indonesian Equity Market from Emerging to Frontiers (potentially causing a USD 6-9 billion foreign outflow from the country), we view a similar swift government response in reforming and in restructuring fiscal policies to upgrade Moody’s Outlook in Indonesia to stable. Previous debates between the Presidential cabinet and House of Representatives (DPR) regarding the increase of the state budget deficit beyond 3% to accommodate Indonesia’s GDP growth through government spending may be withheld for the time being.

 

• Other Credit Ratings May Follow Behind.. This is the first instance since the 1990s that Moody’s has placed a ’Negative’ Outlook to the Indonesian Government. On the other hand, S&P has given 11 ’Negative/Negative Watch’ Outlooks since 1998 Asian Financial Crisis. Therefore, a ‘negative’ tilt by S&P based on their historical pattern on Indonesia’s Outlook. Our government bonds were also kept at “Junk” bond ratings by S&P between 1998—2016. By comparison, Moody’s placed Indonesian bonds as “Junk” for a shorter span between 1998—2007.

 

 

 

 

🔹 PART II : Cases Of Aftermath In Downgrade Of Outlook

• AMERICA (2011-2023) : The U.S. has repeatedly faced negative outlooks despite retaining high ratings, reflecting governance risk rather than solvency risk. In 2011, S&P placed the U.S. on negative outlook amid escalating debt-ceiling brinkmanship, explicitly warning that political polarization threatened fiscal credibility. The message was clear: default risk was political, not economic. More recently, in 2023–2024, agencies highlighted worsening debt dynamics, rising interest costs, and repeated budget standoffs as justification for negative or cautious outlook language.

 

 

• GREECE (2009-2012): In Greece’s case, negative outlooks were effectively countdown timers to disaster. As early as late 2009, agencies revised Greece’s outlook to negative after fiscal data revisions revealed massive deficits. These outlook changes triggered rapid increases in bond yields and CDS spreads even before formal downgrades occurred. Once outlooks turned negative, market access deteriorated almost immediately. Greece demonstrates that when fundamentals are already fragile, outlooks can move markets more violently than downgrades, because they signal inevitability.

 

 

• JAPAN (2001 – 2015) : Japan offers the inverse case: even when ratings were cut, outlooks often remained stable. Agencies acknowledged extreme debt levels but emphasized strong domestic funding, policy continuity, and central bank support.

 

 

 

🔹 PART II : Impact On Indonesia’s Investor Confidence

Indonesia’s Visible Prudency In Metrics

• Declining Debt-To-GDP. While state expenses did outpace state revenues in 2025, Debt-To-GDP managed to continue its downward trajectory to 38.65% of GDP from 38.8% of GDP in 2024. This indicates that the current Indonesian MoF Purbaya adhered to the consistency with his predecessor in keeping state borrowing costs at a manageable rate.

 

• Debt Service-To-GNI. Indonesia’s Debt Service-to-GNI has been kept at a range of 4—8% since 2005.

 

 

• Added Measures To Prevent Slip-Up In Expenses. Aiming for a cooler 2.68% deficit to GDP in 2026, MoF Purbaya announced incentives in the form of higher regional fund transfers (Transfer Ke Daerah/TKD) may be agreed upon by President Prabowo if regional governments have exhibited spending discipline and weeded out corruption.

 

 

 

🔹 Forecasting Indonesia’s 10-Year Bonds Yields Holding Steady At 6.5-6.6%

• We forecast Indonesia’s 10-Year Bonds Yield to remain resilient at 6.5-6.6% by the end of 2026. While Moody’s has downgraded Indonesia’s outlook from stable to negative, we are of the opinion that the Indonesian government will implement reforms to self-correct itself for higher prudency and maintaining predictability throughout the current administration. Our assumption is evidenced by the government’s recent quick compliance to MSCI’s demands in order to keep foreign and local investors’ confidence with Indonesia’s climate sunny.

 

 

 

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NH Korindo Sekuritas Indonesia berizin dan diawasi Otoritas Jasa Keuangan (OJK). Untuk informasi lebih lanjut, anda dapat menghubuni CS kami via email CSO@nhsec.co.id