Indonesia's government bonds are attracting their largest monthly foreign inflows in over a year, with investors buying a net $1.2 billion through June 26. The surge follows Jakarta's campaign to raise yields and stabilize the rupiah, offering relief after a mid-month selloff pushed the currency to record lows and 10-year yields to 7.47%.

Bank Indonesia's aggressive monetary tightening appears to be working. The central bank has lifted borrowing costs by 100 basis points this year, including a surprise June hike that caught markets off guard. These moves helped push the 10-year yield to 7.12% as of Tuesday, drawing foreign capital back to Southeast Asia's largest economy.

DBS Bank strategist Eugene Leow notes that higher yields are successfully recapturing investor attention, while declining global oil prices provide additional support. Indonesia imports significant fuel and maintains costly subsidies, making it vulnerable to energy price shocks that have recently reversed.

The bond market recovery contrasts sharply with equities, where stocks remain down roughly 34% year-to-date. While the rupiah has rebounded about 2% from its trough, policymakers face the delicate task of maintaining yield attractiveness without stifling growth in an economy still reeling from earlier volatility.