Singapore: Indian bonds are offering the highest real yields over Indonesian debt since 2015, thanks to expectations of a divergence in policy stimulus between the two countries.
Bank Indonesia unexpectedly cut its policy rate last Friday, citing the low inflation outlook. That same week, India’s 10-year yield jumped seven basis points after ET Now reported the government is weighing a possible stimulus worth 400 billion rupees and may relax the fiscal deficit target for this year.
India inflation has averaged just 2.47% in the past five months, compared with 4.11% in Indonesia. As a result, the inflation-adjusted yield advantage that India’s 10-year notes offer over Indonesia’s widened to 202 basis points, the most since April 2015. This is a marked turnaround from November when the reverse was true, with a spread as low as minus 400 basis points.
Yields on India and Indonesian 10-year bonds are at 6.63% and 6.27% respectively, the highest in Asia. Both nations are rated at BBB minus by S&P Global Ratings with stable outlook. Bloomberg