Indonesia is planning to issue a 10-year samurai bond next month and for fund managers who for benchmark purposes need exposure, this issue may be an attractive alternative to Japanese government bonds.
First, Indonesia's credit rating by S&P is BB. Our analysis suggests Indonesia is a good candidate for a ratings upgrade over the next 3-6 months. We suspect it is on its way to investment grade status.
Second, Japan Bank for International Cooperation will guarantee the samurai issue. Japan Credit Rating Agency gave Indonesia investment grade rating (BB+) a few months ago.
Third, the spread between samurais and JGBs has narrowed over the past week or so, but just below 70 bp. The yield on the 10-year JGB stands at about 94 bp today.
One gets higher yielding instrument than JGBs without taking more credit risk.
Disclosure: No positions