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Indonesian Bonds Outshine Indian Rivals as Investors Shift Focus
8 Sep
Summary
- Yield gap between Indonesia and India's 10-year bonds expected to double by Q3 2026
- Investors betting on Indonesia's stronger rate-cut prospects and better fiscal discipline
- India faces headwinds from US tariffs, while Indonesia weathers political unrest
As of September 2025, investors have been shifting their focus towards Indonesian sovereign debt, favoring it over Indian bonds in the contest between Asia's two traditional high-yield markets. The current yield gap between Indonesia's and India's 10-year bonds stands at around 10 basis points, but economists surveyed by Bloomberg expect this gap to double by the third quarter of 2026.
This trend reflects expectations of sustained outperformance for Indonesian debt compared to Indian government securities. Investors are betting on Indonesia's 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.
Despite bouts of political unrest in Indonesia last month, the country's financial markets have stabilized, partly helped by the Finance Minister's pledge to improve government policies. Meanwhile, India's 10-year bond yields surged 19 basis points in August, the steepest monthly jump in nearly three years, while the rupee's recent slide to record lows has further dented sentiment.
