Indonesia’s two-year bonds rallied, pushing the yield toward a record low, on speculation investors are favoring shorter-term notes to guard against price swings ahead of a central bank meeting today. The rupiah fell.
DBS Group Holdings Ltd. expects Bank Indonesia to be “more hawkish” at the policy review, analysts led by David Carbon wrote in a note, after inflation reached a 20-month high of 5.31 percent in February. Short-term bond prices tend to fluctuate less than long-term ones as interest rates increase or decrease. Global funds added 2.83 trillion rupiah ($292 million) to their local-currency sovereign debt holdings this month through March 5, finance ministry data show.
The yield on the government’s 11 percent debt due October 2014 dropped three basis points, or 0.03 percentage point, to 4.28 percent as of 9:01 a.m. in Jakarta, prices from the Inter Dealer Market Association show. That is 10 basis points off an all-time low of 4.18 percent reached on Feb. 15. The yield on 10-year notes was little changed at 5.33 percent. The central bank may raise the lower limit for the so-called Fasbi, or the rate it pays lenders on overnight deposits, in the coming months, according to PT Bank CIMB Niaga. The floor rate is currently at 4 percent.
“The market seeks security in short-term positions on expectations the Fasbi may be raised in the coming meetings,” said Mika Martumpal, a currency analyst at PT Bank CIMB Niaga in Jakarta. “Investors’ perception of Indonesia’s credit is positive, so short-term yields may continue to fall.”
Bank Indonesia will hold its benchmark reference rate at a record-low 5.75 percent for a 13th month today, according to all 21 economists surveyed by Bloomberg.
The rupiah’s one-month non-deliverable weakened 0.02 percent to 9,725 per dollar, data compiled by Bloomberg show. They traded at a 0.3 percent discount to the spot rate, which declined 0.1 percent to 9,694, prices from local banks show. A daily fixing used to settle rupiah derivatives was set at 9,688 yesterday, from 9,709 on March 5, by the Association of Banks in Singapore.
One-month implied volatility in the rupiah, which measures expected moves in the exchange rate used to price options, added seven basis points to 5.81 percent.
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