Indonesia’s government bond market ended 2025 with a narrow but notable turnaround in foreign investor behaviour. After months of persistent selling, overseas funds returned in December, helping the market close the year with a small net inflow.
The shift followed a volatile period marked by political unrest, leadership changes at the finance ministry, and worries over fiscal discipline and central bank independence.
December’s data suggests that, while confidence remains fragile, positioning had become so light that even modest improvements in global and domestic conditions were enough to draw investors back.
Foreign investors recorded net buying of about $388 million in Indonesian local currency bonds in December, according to Bloomberg. It was the first monthly inflow since August.
That late recovery meant total foreign net inflows for 2025 reached roughly $337 million, extending an annual buying streak into a third consecutive year, albeit at a far slower pace than earlier periods.
Months of heavy selling
The December rebound followed a sharp reversal in sentiment during the September to November period.
Over those three months, global funds sold around $4.6 billion worth of Indonesian bonds, wiping out earlier gains.
The selloff coincided with unrest in several cities and the removal of long-serving finance minister Sri Mulyani Indrawati, who had been widely viewed as a key anchor of fiscal credibility.
Investor unease was further fuelled by concerns that the incoming finance minister’s plans to increase government spending could widen state budget deficits.
At the same time, questions emerged over the independence of Bank Indonesia, adding to the pressure on local assets and contributing to sustained foreign outflows through much of the final quarter.
Why December mattered
By December, foreign positioning in Indonesian bonds had already thinned considerably. This meant that the bar for renewed inflows was relatively low.
Improved global conditions played a role, including a weaker US dollar and a more manageable supply of government debt. Together, these factors made Indonesian bonds more attractive after months of caution.
Research from PT Mandiri Sekuritas highlighted that sentiment had become highly sensitive to incremental positive signals.
Central bank signal
Policy decisions also helped steady nerves. In December, Bank Indonesia kept its benchmark interest rate unchanged, prioritising rupiah stability amid ongoing capital outflows.
At the same time, it indicated that it would continue to look for space to ease policy in the future.
This balancing act reassured markets that the central bank was not rushing into aggressive cuts solely to support government growth plans.
That stance reduced fears of a sharp policy shift and helped differentiate monetary policy from fiscal ambitions.
However, analysts continue to flag risks linked to domestic finances.
Potential shortfalls in state revenue, combined with plans for higher government spending, remain a key concern for investors assessing Indonesia’s bond market in 2026.
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