Indonesia’s local currency bond market has solidified its position as a vital component of the nation’s financial ecosystem, reaching a size of 7,688 trillion rupiah ( US$471 billion ) as of December 2024, according to data from AsianBondsOnline.

This year, the market has demonstrated remarkable resilience despite global economic uncertainties, with local credit rating agency PT Pemeringkat Elfek Indonesia ( Pefindo ) noting that the value of local currency bond issuances has increased in the country across multiple issuer segments.

Corporate bonds surged 77.4% in Q1 2025 compared to the same period last year, with issuance value reaching 46.75 trillion rupiah. Government debt issuance also increased, with 282.6 trillion rupiah worth of SBN ( Surat Berharga Negara ) issued compared to 104 trillion rupiah in 2024 to support President Prabowo Subianto’s key infrastructure projects. In addition, Bank Indonesia ( BI ), the country’s central bank, issued 150 trillion rupiah of Bank Indonesia Rupiah Securities ( SRBI ) to boost liquidity in the market.

The momentum for local currency bond issuances is expected to strengthen further following BI’s decision to cut interest rates for the second time this year by 25bps to 5.5% just last month.  

Diverse ownership structure

Indonesia has one of the most diverse fixed income investor ownership structures among all local currency bond markets in emerging East Asia, according to Asian Development Bank’s recent Asia Bond Monitor report. At the end of December 2024, domestic investors held around 85.5% of tradable sovereign bonds, while foreign investors accounted for the remaining 14.5%. Among domestic investors, the largest holder was BI, which has been ramping up its holdings of government bonds as part of its monetary operations.

Institutional investors such as banks and insurance and pension funds, which typically account for the largest bond holdings share among emerging East Asian peers, accounted for a much smaller holdings share of only 17.4% and 19.0%, respectively, in Indonesia.

Despite the strong tailwinds for Indonesia’s local currency bond sector so far this year, several factors that need to be addressed to ensure its sustainable development.

These include stabilizing the Indonesian rupiah. BI’s January and May 2025 rate cuts were a positive step, but further measures, such as targeted currency interventions, promoting export-led growth, and maintaining robust foreign exchange reserves, can enhance the currency’s stability. A stable rupiah would reduce risk premiums and make Indonesian bonds more competitive regionally.

Improving liquidity

Encouraging corporate bond issuance, particularly from small and medium enterprises ( SMEs ), can diversify the market. Incentives like tax breaks for issuers and simplified regulatory processes could stimulate supply. Developing an active secondary market through market-making mechanisms and standardized trading platforms would also improve liquidity and reduce price volatility, attracting more institutional investors.

The country’s US$13.9 billion sustainable bond market offers significant growth potential. Expanding issuance of green, social, and sustainability-linked bonds, particularly by private corporations, could attract ESG-focused investors. Partnerships with international organizations to certify and promote these bonds would enhance their appeal. Additionally, creating frameworks for transition bonds to support industries moving toward sustainability could further diversify offerings.

Leveraging technology can reduce transaction costs and broaden access. Digital platforms for bond issuance and trading, including blockchain-based systems, could streamline processes and enhance transparency. Following the example of other emerging markets, Indonesia could pilot digital bond platforms to attract tech-savvy retail investors, particularly younger demographics. This is something we are already seeing in the Asian financial hubs of Hong Kong and Singapore, which are looking to establish financial market infrastructure for tokenized bond issuances.

Given the importance of the Indonesian local currency bond market, we are inviting rupiah fixed-income investors to share your thoughts with us as part of Asset Benchmark Research’s ( ABR ) Local Currency Bond Survey.

Please access the survey by clicking here.

Relevant respondents can choose the Best of Sellside individuals across research, sales, and trading as well as the top sellside institutions for 2025. Voting closes at the end of June 2025.