Indonesia's government bond sell-off returned on Thursday following a surprise interest rate hike issued by Bank Indonesia on June 10 aimed at stabilizing the rupiah and calming bond markets [1, 2]. The 10-year government bond yield rose between 9 and 12 basis points to around 7.43% to 7.47%, near multi-year highs, reversing brief post-hike gains [1, 2]. Meanwhile, the five-year bond yield climbed 3 to 9 basis points, reaching approximately 7.49%, its highest level in about six years [1, 2].

The rupiah weakened by 0.1% amid ongoing market volatility on Thursday, adding to a year-to-date depreciation of roughly 7% against the US dollar that marks it as Asia’s worst-performing currency this year [1, 2]. The benchmark Indonesian stock index showed mixed moves, with sources reporting intraday swings ranging from a 0.9% drop to a 1.7% rise, reflecting uncertainty among investors [1, 2].

Foreign investors have withdrawn a net US$3.9 billion from Indonesian equities and US$597 million from local bonds in 2026, intensifying selling pressure. Indonesian equities have declined over 30% this year, the steepest fall among global primary indices [1].

Economic concerns are weighing on investor sentiment. Rising tensions in the Middle East have pushed oil prices higher, threatening Indonesia’s trade deficit, inflation outlook, and credit ratings. President Prabowo Subianto’s interventionist policies have also unsettled markets [1, 2]. Adra Wijasena, senior fixed income analyst at PT Shinhan Sekuritas Indonesia, pointed out that a rise in US Treasury yields on bets the US Federal Reserve will hike rates further has dampened sentiment towards Indonesian bonds [1].

Bank Indonesia governor Perry Warjiyo said the central bank’s main priority remains currency stability, adding, "We are taking preemptive action to ensure the rupiah finds steadier footing" [1]. Jessica Tasijawa, fixed income analyst at PT Mirae Asset Sekuritas Indonesia, noted there is still room for bond yields to rise until rupiah pressures ease, with scope for up to 50 basis points of additional rate hikes [1].

Market watchers expect Bank Indonesia to consider another rate hike during the week of June 15 as it continues efforts to support the rupiah and calm bond market volatility [1].