Economic and Bond Market Review

The opening review sets the macroeconomic scene for the year and traces how it played through the bond market — closing with the most traded and best performing series of the year.

Global economic growth showing moderate resilience

The global economy in 2025 is showing moderate resilience and expected to operating below long-run historical trend levels. According to recent forecasts, global GDP growth is projected at around 3.0 % in 2025, and increase to perhaps 3.1 % in 2026, depending on developments in trade, investment and policy.

While some regions are performing better than expected, the overall picture remains one of sub-trend growth and significant divergence across advanced vs emerging economies.

G20 economic growth projection

High volatility in markets

Financial markets in 2025 are characterised by heightened volatility and increasing sensitivity to a mix of factors. VIX Index which often used by investors to evaluate market sentiment and perceived risk, shows a significant increase in April 2025 by more than 200% before it calms down to 19% in September 2025.

Why volatility is elevated

• Geopolitical shocks. Regions of strategic importance remain volatile, triggering jumps in commodity prices, safe-haven flows (into gold, U.S. Treasuries), and risk premia.
• Monetary policy uncertainty. Markets are trying to anticipate central-bank actions especially when and how rapidly the Federal Reserve will cut rates, but diverging signals, shifting labour/inflation data, and global spill-overs mean guidance is less clear. This feeds speculative repositioning and reactive trading.
• Tariff and trade policy risk. The fresh wave of U.S. tariff threats, counter-measures by trading partners, and trade-policy uncertainty more broadly mean that investor expectations of global growth, supply-chain normalisation, and corporate profitability are under revision.

Elevated geopolitical risk

Geopolitical risk in 2025 remains a key structural challenge for the global economy and markets, and it is increasingly intertwined with economic, trade and technology domains. This means the economic consequences are broader than classic military or diplomatic flash-points.

Geopolitical instability remains one of the two top-ranked risks (alongside trade/trade-policy). While dramatic escalation leading to a global crisis remains a lower-probability scenario, the baseline expectation is for fluid, elevated-risk conditions rather than “normal” low-risk stability. Geopolitical risk are now treated as a recurring background condition rather than an external shock. Given this, resilience and diversification have become more valued.

Nature and sources of the risk

The nature and sources of risk stemming from high geopolitical tension are rooted in the growing fragmentation of global power, the resurgence of strategic rivalries, and the weaponization of economic interdependence. These tensions manifest through armed conflicts, trade restrictions, sanctions, cyberattacks, and energy-supply disruptions that collectively erode global stability. The nature of the risk is systemic, as it simultaneously impacts security, economics, and finance—raising uncertainty, deterring investment, and amplifying market volatility. Its sources include persistent conflicts such as the Russia–Ukraine war, the Iran–Israel confrontation, heightened U.S.–China strategic competition, and the politicization of global trade and technology flows. The economic implications are broad: supply-chain fragmentation, elevated energy and commodity prices, inflation persistence, and capital flight to safe-haven assets.

Source: Various sources, processed by PHEI

Uncertainty in monetary policy

By September 2025, the global monetary policy landscape is defined by divergence and uncertainty. After holding rates steady for nearly a year, the U.S. Federal Reserve finally delivered its first rate cut in September—lowering the federal funds target range to 4.00–4.25%, amid signs of cooling inflation and a softening labor market.

Headline CPI stands 2.9% in September 2025, with core inflation broadly stable, while job creation has slowed and unemployment has edged up to around 4.3%, suggesting a gradual loss of labor-market momentum.

Across the Atlantic, the European Central Bank has eased by about 100 bps since late 2024, bringing its deposit rate to 2.15%, as euro-area inflation normalized toward target and growth stagnated. The Bank of England, in contrast, has trimmed its Bank Rate from 4.75% to 4.00%, balancing easing pressures with sticky inflation near 3.8%. In Asia, the People’s Bank of China has maintained an accommodative stance, keeping the 1-year Loan Prime Rate at 3.00% to support a slowing economy, while the Bank of Japan remains cautious after ending negative rates earlier, holding at 0.50% since January 2025.

This divergence Fed easing, ECB and BoE cautiously cutting, PBOC steady, and BoJ normalizing, underscores a fragmented global monetary cycle, amplifying exchange-rate volatility, capital-flow shifts, and uncertainty over the next phase of policy coordination.

Source: Bloomberg, processed by PHEI

U.S. reciprocal tariffs

As of September 2025, the United States’ realized effective tariff rate remains historically elevated, reflecting the cumulative effects of the Trump administration’s “Reciprocal Tariff” policy and subsequent renegotiations with key trading partners.

According to Bloomberg, the U.S. effective tariff rate averages around 14.60% (15 countries in the table), up significantly from the pre-2025 baseline of roughly 7.51%, even after accounting for partial suspensions and temporary reductions under the May–August 2025 tariff pause. Although this rate is slightly below the levels anticipated in earlier forecasts due to limited easing in bilateral agreements particularly with China, Indonesia, and the EU, it continues to weigh on global trade flows and price stability. These higher tariffs, alongside persistent trade uncertainty, have introduced a quasi-supply shock to the global economy, amplifying input costs for manufacturers and raising consumer prices in the U.S.

From a macroeconomic perspective, the sustained elevation in U.S. tariff rates has produced asymmetric spillovers: while the U.S. enjoys a short-term boost in tariff revenue (offsetting part of its fiscal deficit increase), emerging markets and export-dependent economies face slower growth and reduced investment flows.

While effective tariff rates have stabilized below their April 2025 peaks, the global trade system continues to operate under a regime of elevated costs, structural inefficiencies, and heightened policy unpredictability—posing lasting risks to both inflation control and cross-border growth momentum.

Indonesia economy showed sustained growth amid global uncertainty

Indonesia’s economy maintained its growth momentum in 2025, with GDP expanding by 5.12% in Q2 and full-year growth expected to reach around 5.2%, slightly higher than 2024. The improvement reflects robust domestic demand, underpinned by resilient household consumption supported by controlled inflation, solid employment conditions, and rising consumer confidence. On the investment front, activity remains strong particularly in infrastructure, manufacturing, and downstream mineral industries reflecting continued confidence in Indonesia’s structural transformation agenda. Despite external headwinds from moderating global demand and lower commodity prices, the economy continues to demonstrate macroeconomic stability, with a manageable fiscal deficit, a stable currency, and inflation within Bank Indonesia’s target range.

Easing monetary cycle, balancing growth and stability

Indonesia’s monetary and external sector dynamics reflect a delicate balance between sustaining growth and maintaining financial stability. Bank Indonesia began a cautious easing cycle, lowering the BI 7-Day Reverse Repo Rate from 6.00% at end-2024 to 4.50% by September 2025, with room for further adjustment as inflation steadily declines within target, CPI eased to below 1% in beginning of 2025 and is targeted near 2.0% by 2025. The disinflation trend, supported by stable food and energy prices, enables greater policy flexibility to nurture domestic demand.

However, the rupiah faced renewed depreciation pressures, reversing earlier stability as global investors favored U.S. assets and external sentiment turned risk-averse. The USD/IDR trended upward through 2025, driven by persistent dollar strength and moderating trade surpluses, prompting measured interventions by Bank Indonesia through spot and DNDF markets to smooth volatility.

Meanwhile, foreign exchange reserves remained robust above USD 140 billion, providing over six months of import coverage and reinforcing confidence in Indonesia’s external position. Together, these developments highlight a period of controlled adjustment, where easing inflation supports monetary flexibility, yet global volatility and currency pressures continue to test Indonesia’s external resilience heading into 2026.

Key business activity indicators

Indonesia’s domestic demand indicators present a mixed yet resilient picture of economic momentum. The Purchasing Managers’ Index (PMI) stood at 50.4, down from 51.2 in 2024, indicating a modest slowdown in manufacturing activity but still within expansionary territory. This suggests that production remains steady despite external headwinds from weaker global demand and currency volatility.

Meanwhile, the Consumer Confidence Index (CCI) declined to 115.0 from 127.7 in 2024, a 9.95% year-to-date drop signaling softer household sentiment amid inflation concerns and higher borrowing costs in 1H2025. However, retail sales surged by +94.44% year-to-date, reflecting a strong rebound in consumer spending, particularly ahead of festive and election-related consumption cycles.

Together, these indicators portray an economy where manufacturing growth has plateaued, but consumer activity continues to drive resilience, supported by fiscal stimulus, a gradual easing of monetary conditions, and stable labor market fundamentals that sustain overall domestic momentum heading into late 2025.

Narrowing surplus reflects weaker external cushion

Indonesia’s balance of payments (BoP) in 2025 shows signs of softening external resilience as both trade dynamics and capital inflows moderate amid a less favorable global environment. During the first half of the year, the current account recorded a deficit of around USD 7 billion in Q2, reversing the small surplus seen in late 2024. This shift reflects weaker commodity exports, particularly coal and palm oil, as global prices normalized from their 2022–2023 highs, alongside steady import demand driven by domestic investment activity.

Meanwhile, the capital and financial account also registered a net outflow of around USD 5 billion, largely due to foreign portfolio adjustments following global monetary tightening and renewed volatility in emerging-market currencies. Despite this, Indonesia’s overall BoP position remains manageable, supported by robust foreign direct investment (FDI) in manufacturing and downstream industries as well as foreign exchange reserves exceeding USD 140 billion, providing a solid liquidity buffer.

The BoP pattern highlights a narrowing external surplus compared with the 2022–2023 period, signaling a transition from commodity-led windfalls to more balanced structural growth. While the rupiah experienced depreciation pressure in mid-2025, Bank Indonesia’s calibrated interventions have limited volatility and preserved investor confidence. Going forward, the BoP outlook will depend on global demand recovery, stability in capital flows following the Fed’s easing cycle, and Indonesia’s continued progress in diversifying export earnings beyond raw commodities. Overall, the 2025 external position reflects a controlled adjustment phase, where the economy’s fundamentals remain intact even as global conditions test Indonesia’s external buffers.

Stable surplus amid moderating export momentum

Indonesia’s balance of trade remains in surplus through the first half of 2025, reflecting continued external resilience despite a gradual softening in global demand and commodity prices. In Q2 2025, exports reached USD 69 billion, up modestly from USD 67 billion in Q1, while imports increased more sharply to USD 60 billion, narrowing the quarterly surplus to USD 9 billion from USD 11 billion earlier in the year.

This indicates a mild compression in the trade surplus as domestic demand and capital goods imports strengthened alongside investment recovery. Compared to the peak commodity cycle of 2022–2023, Indonesia’s export performance has normalized, with key sectors such as coal, palm oil, and nickel experiencing lower average prices, partly offset by rising shipments of manufactured and downstream mineral products. Meanwhile, import growth, driven by machinery, raw materials, and consumer goods, signals firming domestic investment and consumption trends.

Overall, the trade balance remains structurally positive, supported by Indonesia’s diversified export base and disciplined import management. However, the surplus is narrowing compared to 2022–2023 highs, reflecting a maturing recovery phase and rebalancing of external accounts. As global trade conditions remain uncertain, the sustainability of the surplus will depend on Indonesia’s progress in expanding non-commodity exports and maintaining competitiveness through industrial downstreaming, logistics improvement, and export market diversification.

Fiscal position: softer revenue growth and targeted spending keep deficit in check

Indonesia’s fiscal performance through September 2025 indicates a period of moderate revenue growth and disciplined expenditure management as the government balances fiscal consolidation with efforts to sustain domestic demand. Based on the latest data, state revenue growth has slowed, reflecting weaker tax collections amid declining commodity prices and moderating global trade activity. Non-oil and gas tax receipts and VAT performance were softer than a year earlier, while income tax growth was constrained by lower corporate profits in export-oriented sectors. Non-tax revenue (PNBP) provided partial support, especially from the energy, mineral, and SOE dividend components—but not enough to offset weaker tax inflows. On the expenditure side, the government maintained targeted spending, focusing on infrastructure, social assistance, and energy subsidies while containing non-priority outlays to preserve fiscal discipline.

As a result, the fiscal deficit remains manageable, below 3 % of GDP, consistent with Indonesia’s post-pandemic fiscal normalization framework. The government has financed the shortfall mainly through domestic bond issuance, supported by resilient demand from local investors and selective foreign participation. Meanwhile, public debt remains stable at around 39 % of GDP, comfortably below the statutory ceiling and signaling sound debt sustainability. Going into late 2025, fiscal policy is expected to remain cautiously supportive, emphasizing efficient revenue collection, improved tax administration, and the expansion of non-tax income sources to safeguard macroeconomic stability.

Overall, Indonesia’s 2025 fiscal stance reflects resilience amid revenue headwinds, anchored by prudence, targeted fiscal support, and credible debt management that sustain investor confidence and economic stability.

Divergent performance in equity market amid policy shifts and growth uncertainty

Global equity markets are exhibiting a two-speed dynamic: mega-cap U.S. indices such as the S&P 500 continue to outperform, buoyed by expectations of monetary easing and sustained technology leadership. Meanwhile, developed markets in Europe and Japan have seen modest gains performance as inflation remains sticky and global trade tensions persist. In Asia and emerging markets markets are navigating mixed signals from growth-momentum, currency pressure, and capital-flow volatility. The overall picture is one of risk-on sentiment being concentrated in the U.S., while elsewhere investors remain cautious, seeking selective opportunities amid a backdrop of divergent monetary policy, supply-chain disruption, and elevated geopolitical risk.

Stabilizing yields amid easing policies and divergent economic momentum

In 2025, global sovereign bond yields show a clear divergence across maturities, reflecting differing monetary cycles and growth outlooks. On the 2-year tenor, yields on U.S. Treasuries, UK Gilts, and German Bunds declined, signaling markets’ expectations of monetary easing following peak policy rates in 2024. This short-end compression underscores anticipation of central bank rate cuts as inflation continues to moderate. In contrast, China and Japan posted yield increases, driven by policy normalization in Japan and continued fiscal and credit stimulus in China aimed at stabilizing growth.

At the 10-year segment, yield movements diverged further: U.S. yields fell 42 bps, while long-term yields in Germany, UK, China, and Japan all rose. This widening differential reflects regional policy asymmetry, with U.S. markets pricing in easing and slower growth, while Europe and Asia contend with lingering inflation pressures and evolving policy transitions.

Amid high uncertainty in the economy, Indonesia bond market record an outstanding performance

High geopolitical tension, uncertainty regarding monetary policy and Trump tariff create a high uncertainty in the economy, but even with all that situation Indonesia bond market still managed to record an outstanding performance

What moved the market

• Q1-2024. Global inflation eased but remained above target; central banks held policy rates high. U.S. economy outperformed expectations amid resilient labor market and spending.
• Q2-2024. Fed signaled extended higher-for-longer stance China’s post-reopening momentum weakened
• Q3-2024. Global tariff tensions resurfaced amid Trump-era trade policies. Demand for emerging-market bonds surged on easing outlook and stable inflation.
• Q3-2024. Escalating geopolitical tensions and trade frictions Energy prices rose sharply following Middle East supply disruptions.
• Q4-2024. Global manufacturing slowdown deepened Sticky services inflation delayed expected rate-cut timeline in major economies.
• Q1-2025. U.S. inflation moderated further, reviving expectations of mid-year Fed cuts. Japan exited negative-rate policy, marking a major monetary policy shift.
• Q2-2025. Fed delivered first rate cut since 2022, triggering global bond rally. Indonesia’s GDP grew 5.12 % yoy; domestic demand and investment remained strong.

Outstanding total return performance contributed by capital gain through all segments

Different from last year, total return index not only gaining from coupon return but also from capital gain. Clean price index through all segments shows that capital gain contributed around 3 – 4% to Total return index, bringing the index to have an extraordinary performance this year.

The market formed a bull steepener

In the end of 2024, Indonesia Government Securities Yield Curve (IGSYC) formed a bear flattener pattern, however in since the beginning of 2025, market expect Fed rate cut cycle to continue in 2025 while Bank Indonesia also decide to eased monetary cycle earlier than Fed. This situation turns the market to form a Bull Steepeners, when short-term rates decrease faster relative to long-term rates.

Government bond primary market

Ìn the primary market, investor demand during Q1 - Q3 2025 increased significantly compared to previous year, Total bid received in Q1 – Q3 2025 increase by 153.97% compared to Q1 – Q3 2024. While the demand increase, the supply side of government bond remain stable with Total bid accepted only increase by 21.65% in Q1 – Q3 2025 compared with Q1 – Q3 2024. Stable inflation and lower interest rates seems to drive the market goes for bonds over other instrument.

Government bond instrument has been dominated by fixed rate type with outstanding reached Rp4,292.05 trillion, followed by sukuk type bond with outstanding reached Rp1,596.35 trillion.

Government bond remain solid with Bank as a pillar

Ownership composition in government bond (SBN) market has been dynamic for over the past 5 years. While foreign investor ownership remain low since pandemic, now government bond was supported by local investor.

As of September 2025, Bank Indonesia remain as the biggest holder with ownership 24.1% of SBN, the ownership are decreasing from 2024 which 26.7% of SBN. The biggest shift in the ownership of SBN in 2025 is the Banking, while other segments are decreasing, Banking remain as a solid pillar for SBN in 2025 with ownership increase to 21.3% from 17.5% in 2024, the bond net flow for Banking itself in 2025 was around Rp317.43 trillion.

The shifting ownership portion in SBN may still occur regularly but as we can see, local investor stood as a pillar for Indonesia Government Bond.

Corporate bond yield decreased across tenor and rating group

Decreasing yield was observed across tenors and rating group. Based on tenors, overall the corporate bond yield curve formed bull steepener pattern with the short tenors (<5yr) yield decreased faster. While based on rating, A group recorded the biggest drop in yield.

Corporate bond yield curve trend by rating

Source: PHEI, as at September 2025

Corporate bond issuance at the highest level

Corporate bond supply that has been decreased in 2023, continue to increase for the last 2 years. Decreasing borrowing cost pushed issuance in 2024 higher to Rp142.72 trillion or increase from Rp124.97 trillion in 2023, this year corporate bond issuance goes even higher to Rp167.69 trillion. This number was higher than bond maturity amount, suggesting refinancing as a purpose and also lower borrowing cost.

Corporate bond types are less diverse with fixed rate bonds have dominated the market. Fixed rate bond comprised 84.41% with outstanding reached Rp387.37 trillion in Q3-2024. While corporate sukuk placed the second biggest outstanding with 10.78% of total corporate bond outstanding.

Higher issuance with high demand push the ownership of corporate bonds

As of September 2025, Insurance & pension fund still recorded as the biggest corporate bond ownership with 31.73%, followed by Mutual fund and Banking with 30.45% and 21.05%.

In terms of the net flow, Mutual funds remain as a loyal investor for corporate bond with Rp36.26 trillion net flow since the beginning of 2025, followed by Banking with Rp11.04 trillion. There’s not much changes in the ownership of corporate bond because of the reinvestment trend in the market.

Trading activity in both government and corporate bonds picked up sharply in 2025

Last year, the average monthly transaction volume of government bond for outright transaction decreased by -2.01% to Rp40,065 billion/month compared with Rp40,887 billion/month in 2023. The average monthly transaction frequency also decreased by -11.46% to 4,102/month in 2024 from 4,663/month in 2023. Meanwhile in 2025, average monthly transaction & frequency of government bond for outright transaction both increase significant by 73.80% and 32.44%.

Top 10 government bond series by trading volume and frequency

The ten most actively traded government series over the period covered by this edition, ranked by outright trading volume and by number of transactions.

Top 10 corporate bond series by trading volume and frequency

The ten most actively traded corporate series over the period covered by this edition, ranked by outright trading volume and by number of transactions.

Top 10 bonds by total return

The best performing government and corporate series by total return over the period covered by this edition.