Bloomberg News

Indonesia Two-Year Yield at One-Week Low on Fund Inflow Optimism

April 10, 2013

Indonesia’s bonds advanced, pushing the two-year yield to the lowest level in almost a week, on speculation foreign inflows will recover. The rupiah touched the strongest level in almost six weeks.

The country should benefit from an increase in capital flows into Asia, analysts at DBS Group Holdings Ltd. led by Philip Wee in Singapore wrote in a research note today. The central bank will keep its benchmark interest rate at a record- low 5.75 percent today, according to all 16 economists surveyed by Bloomberg. The average yield on local-currency bonds dropped 24 basis points in the 12 months through yesterday to 6.14 percent, an HSBC Holdings Plc index shows.

“Sentiment on Indonesia still seems positive, even if demand has driven valuations to be quite expensive,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “Bank Indonesia is probably not going to change its monetary policy today, though it sounds like they are going to hike rates at some point this year.”

The yield on the 11 percent bonds due October 2014 dropped four basis points, or 0.04 percentage point, to 4.57 percent as of 9:17 a.m. in Jakarta, the lowest level since April 5, according to prices from the Inter Dealer Market Association.

Overseas investors pulled money from Indonesian local- currency bonds for four weeks through April 5, the longest losing streak since June 2012, finance ministry data show. The Bank of Japan said last week it plans to buy 7.5 trillion yen ($75 billion) of notes a month and double its monetary base in two years.

Default Swaps

The cost to insure the nation’s government debt using five- year credit-default swaps fell five basis points to 146 basis points in New York yesterday, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The rupiah was unchanged at 9,690 per dollar after reaching 9,670 earlier, the strongest level since March 1, prices from local banks compiled by Bloomberg show. It traded at a 0.1 percent premium to the one-month non-deliverable forwards, which was steady at 9,702, data compiled by Bloomberg show.

A daily fixing used to settle the derivatives was set at 9,694 yesterday by the Association of Banks in Singapore, from 9,743 on April 9. Today’s rate will be released at 11:30 a.m. in the city-state. One-month implied volatility for the rupiah, a measure of expected moves in the exchange rate used to price options, fell one basis point to 5.93 percent.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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