Investment characteristics of Indonesian government bond market during the COVID-19 pandemic

Abstract

The purpose of the study is to define the main investment characteristics of the Indonesian government bond market during the COVID-19 pandemic. The subject of the analysis is the yield to maturity yield curve of Indonesian government bonds, the dynamics for the period 2 January 2020–15 February 2022 is analyzed with various quantitative methods such as descriptive statistical analysis, time series analysis, correlation and autocorrelation analysis, probability distribution analysis, principal component analysis and graphical analysis. The study reveals that under the COVID-19 pandemic, the yield curve on Indonesian government bonds is highly stable and lacks the strong general volatility of highly developed debt markets during the same period. Quantitative analysis shows that the yield of the investigated bonds has many of the well-studied characteristics that are present in the developed debt markets. However, there are some specifics and anomalies, such as a strong correlation along the entire yield curve and inhomogeneous volatility of medium-term yields. Therefore, despite the probable existence of incorrectly priced debt instruments, Indonesian government bonds should be considered by investors as an appropriate instrument for hedging interest rate risk in the COVID-19 environment.