The Challenging Time for Indonesia Government Bond During Covid-19 Pandemic

Abstract

The Covid-19 pandemic has hit various countries and impacted the bond market. The research aimed to analyze the effect of the Covid-19 pandemic on government bond yields. The research contributed to developing a study on the influence of the Covid-19 outbreak on the bond market. Using an event study allowed observers to measure the impact of a particular event on financial securities. The method used was a differential test on a paired sample that tested the yield of government bonds before and after the announcement of the Covid-19 pandemic. The sample data used were the yields of government bonds at the end of 2019 and 2020. The research also used a selection of government bond yields in the Indonesia Bond Market Directory issued by the Indonesia Stock Exchange. The results show a significant influence of the Covid-19 pandemic on government bond yields. All government bond yields sampled decrease. The most significant decline occurs in government bonds with a maturity period of 1 to 5 years. The research concludes that the Covid-19 pandemic has had a significant effect on reducing the yield of government bonds. Hence, it is recommended that the government keep low-interest rates in the short term so that the yield on government bonds with maturity in the short term remains stable.