JAKARTA • Indonesia's Islamic bond yields have fallen faster than Malaysia's in the past three months, as its higher-yielding notes do better at attracting investors fleeing plunging rates in the developed world.
Yields on rupiah sukuk due in 2019 slid 39 basis points in the period, compared with 26 basis points for equivalent paper in Malaysia.
Indonesia's three-year Islamic bonds pay 7.21 per cent, while those in Malaysia yield 3.25 per cent. Overseas investors pumped US$6.6 billion (S$8.9 billion) into Indonesian debt as of Tuesday and US$4.9 billion into Malaysian securities in the first six months, data compiled by Bloomberg shows.
"On an absolute basis, Indonesia still offers greater returns as investors chase yield," said RHB Research Institute credit strategist Fakrizzaki Ghazali. "I see limited downside potential for Malaysian sukuk yields."
Indonesian bonds are the best performers in South-east Asia this year after its government passed a tax amnesty Bill on undeclared income held overseas, while a rate cut by Malaysia's central bank on Wednesday helped drive gains there.
Cooling inflation had already given Indonesia scope to ease policy this year as price increases averaged 3.9 per cent during the first half, compared with 2015's 6.38 per cent. After Malaysia's surprise rate cut, the central bank lowered its projection for consumer prices to 2 per cent to 3 per cent this year, from 2.5 per cent to 3.5 per cent.
"The easier monetary policy by the Indonesian central bank since the beginning of the year has clearly helped the rupiah sukuk market," said Mr Johar Amat, head of Treasury at OCBC Al-Amin Bank. "Going forward, the ringgit sukuk market should be supported as Bank Negara Malaysia has started to ease its monetary policy."
Both currencies are seeing a revival. While both countries provided stimulus through infrastructure spending, Malaysia has been dogged by a political scandal involving Prime Minister Najib Razak and a bond default at state investment firm 1Malaysia Development Bhd.
Indonesia's government is speeding up investment in roads and railways amid pressure from President Joko Widodo. "Indonesia's fundamentals are getting better," said Bank Central Asia chief economist David Sumual. "We also see the rupiah as quite stable compared with last year. That's why we see more inflows to rupiah assets."