Indonesia bonds to extend edge over India on rate-cut bets

Investors are favouring Indonesian sovereign debt over Indian bonds in the contest between Asia's two traditional high-yield markets. Analysts say the trend has room to run.

- MARCUS WONG PRIMA WIRAYANI

The yield gap between Indonesia's 10-year bonds and India is currently about 10 basis points. Economists surveyed by Bloomberg expect it to double by the third quarter of 2026, underscoring expectations of sustained outperformance by the Southeast Asian nation’s debt.

Investors are tilting toward Indonesia despite bouts of political unrest. They're betting on stronger rate-cut prospects, better fiscal discipline, and fewer trade risks than in India, where growth faces headwinds from US President Donald Trump's punishing 50% tariffs — the harshest in Asia.

“Indonesia bonds could continue to outperform for the rest of the year given BI is open to further rate cuts, while the RBI is more reluctant with a view that inflation could spike in the latter half of the year,” said Murray Collis, head of Asia fixed income at Manulife Investment Management. He was referring to Bank Indonesia and the Reserve Bank of India.