Q4 GDP data for Indonesia, published today, were stronger than expected. The upswing will almost certainly remain impressive, with domestic demand leading the way. Government bonds will continue to struggle for a while given that annual inflation will likely accelerate further while central bank (BI) policy rate hikes have only just started. Nevertheless, we still suspect that 10-year yields will move lower later this year; our forecast is to 8.5% by end-2011, and compares to 8.7% now.
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