THE CREDIT RISK DYNAMICS OF INTERNATIONAL BONDS: THE INDONESIAN CASE

Abstract

The objective of this paper is to test how market-determined local-, global- and US-based factors explain the behaviour of Indonesian credit spreads. Using a specific asset class of bonds issued in the international market by the Indonesian government, this paper provides evidence confirming the importance of major local and global macroeconomic variables in pricing risky debt issued by Indonesia. Using US dollar–denominated bonds ranging from shorter- to longer-maturity groups, this study provides insights into the role of these determinants in the pricing process. Given the implications for pricing and risk management, the evidence from this study is important for investors, policymakers, and issuers.