Indonesian Government Bonds

22 Feb 2021 Written by: Redaksi OCBC NISP

Bond has become a trending topic, especially for Millennials who are starting to try to get “Passive Income”.

The large number of people being laid off due to the COVID-19 pandemic is driving demand for fixed income assets such as bonds; due to the desire to continue to earn an income even when not working. Therefore, let's understand deeper about government bonds or what is often referred to as SBN.

The issuance of Government Securities (SBN) is a way for the government to obtain funds from investors, both individuals and institutions. The funds obtained will then be used for state development through the State Budget (APBN). During the current COVID-19 era, the government has auctioned off many government bonds for the Economic Recovery Program (PEN) which are expected to sustain Indonesia's economic recovery. Check out the variants of government bonds in the image below.

In this article, we will focus on Government Securities or what is often referred to as SUN. SUN itself has two types: Government Bonds (ON) and State Treasury Bills (SPN). However, SPN has a very short tenor (under 1 year), so this type of bond is rarely traded.

Government bonds issued by the government are available in two currencies, namely Rupiah and US Dollar. All Government Bonds denominated in US Dollar which are often referred to as INDON, will have a fixed coupon rate; which means that changes in the Bank Indonesia 7-Day Reverse Repo Rate (7DRRR) benchmark interest will not have an effect on the INDON bond coupon.

On the other hand, there are several types of Government Bonds denominated in Rupiah. However, in this article we will only focus on ORI / SR and FR. Why? Because ORI / SR and FR, are the two government bonds with fixed coupons that are most often traded by investors in the secondary market. Although the fixed coupons provided by ORI / SR and FR refer to 7DRRR, the coupons themselves will not change until the bond matures. Therefore, investment in ORI / SR and FR will be able to provide attractive "passive income" for an investor, because the returns obtained are higher than the Bank Indonesia reference rate, and also because the coupons received will not change. during the tenor of the bonds.

Now friends, SR014 is the latest retail Islamic bonds series by the government; where the offering period is from 26 February 2021 to 17 March 2021. SR014 has a relatively short tenor of 3 years, and provides fixed coupons that are far above the benchmark interest rate of Bank Indonesia's 7DRRR, which has recently been lowered again by Bank Indonesia to 3.5%. Investing in SR014 will directly contribute to the Indonesian economy!

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