Bloomberg News

Indonesian Bonds Decline on Inflation Concern; Rupiah Gains

April 13, 2012

Indonesia’s 10-year government bond yields touched the highest level in almost three months on speculation fuel subsidies will be lowered, stoking inflation.

Bank Indonesia and the finance ministry see a high chance of a reduction in fuel subsidies through a price increase, rationing scheme or both, Bank of America Merrill Lynch said, citing comments from a conference call today with the officials. The government plans to propose limiting sales of subsidized fuel, Jero Wacik, energy and mineral resources minister, said today. Inflation may reach 6.6 percent this year if prices are raised, Bank Indonesia Governor Darmin Nasution said yesterday.

“Bonds may see their prices continue to decline,” said Apressyanti Senthaury, a Jakarta-based analyst in the treasury division of PT Bank Negara Indonesia. “Investors are still anticipating when the government may raise fuel prices.”

The yield on the government’s 7 percent bonds due May 2022 climbed 11 basis points this week, or 0.11 percentage point, to 6.03 percent, the highest since Jan. 17, according to final prices from the Inter Dealer Market Association. The yield gained three basis points today.

The rupiah rose 0.3 percent today and this week to 9,140 per dollar as of 4:12 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. One-month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 6.75 percent for a seventh day.

Parliament has authorized an increase in the price of subsidized fuel should the Indonesian Crude Price exceed the budget assumption by an average of 15 percent over a six-month period. The average was 11 percent above that level as of March 31, according to Bloomberg calculations based on data from the Energy and Mineral Resources Ministry.

To contact the reporter on this story: Yudith Ho in Singapore at yho35@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.


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