(Bloomberg) -- Foreign investors raced back to Indonesia’s bonds last month after the central bank raised rates and as sentiment toward emerging market assets improved on bets the Federal Reserve will cut rates by mid-2024.

Global funds bought a net $1.5 billion of rupiah sovereign notes in November, the most since January, according to data compiled by Bloomberg. That keeps Indonesia on track for its first year of foreign inflow in four years, the data show.

It ends a period for Indonesia in which a narrowing interest-rate gap with the US and an expected increase in local debt supply drove investors to demand a higher premium to hold the nation’s debt. Foreigners pulled out $2.4 billion in the three months to October. 

An unexpected Bank Indonesia hike in October ahead of the Fed pause early last month widened the rate differential and brought investors back. The yield on the country’s benchmark 10-year note has fallen more than 60 basis points from an October high. That’s as markets are now betting that the Fed will cut rates by the middle of next year given signals that growth is slowing and inflation moderating, while BI has signaled it will keep rates high for a while to rein in inflation. 

The rally in Indonesian debt may continue as a weaker US dollar spurs risk sentiment in emerging markets and better-than-expected government finances may prompt Indonesia to end its bond program early, said Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore.

“The lack of supply is likely causing the market to retain a bias to grind lower until around mid-January, barring a surprising and substantial backup in US Treasuries,” he said. BI committing to protect the currency through rate hikes should also keep real yields elevated and make them more attractive to offshore investors, he said.

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