Indonesia’s bonds headed for the biggest five-day loss in eight weeks and the rupiah fell after Standard & Poor’s cut the nation’s credit-rating outlook.
The yield on 10-year sovereign notes rose to the highest level in three weeks after S&P changed its outlook to stable from positive yesterday, partly due to the “stalling of reform momentum.” It maintained Indonesia’s rating at its highest junk level of BB+. Both Moody’s Investors Service and Fitch rate Southeast Asia’s largest economy the lowest investment grades.
“There were expectations for a rating upgrade this year and this revision takes that off the table,” said Suriyanto Chang, head of treasury at PT Bank QNB Kesawan in Jakarta. “The negative sentiment will only last a few more days before bonds begin rallying again as investors seek higher yields.”
The yield on the 5.625 percent notes due May 2023 climbed 10 basis points this week to 5.58 percent as of 10 a.m. in Jakarta, the most since the five days ended March 15, prices from the Inter Dealer Market Association show. The yield rose two basis points today.
The government delayed its plan to reduce fuel subsidies until after the budget is revised to include compensation programs for the poor, President Susilo Bambang Yudhoyono said April 30, indicating the revision is expected to come in May.
“The outlook revision to stable reflects our assessment that the stalling of reform momentum and a weaker external profile have diminished the potential for a rating upgrade over the next 12 months,” S&P said in a statement yesterday.
Overseas funds added 18 trillion rupiah ($1.8 billion) to their local debt holdings in April, finance ministry data show.
The rupiah declined 0.2 percent this week to 9,740 per dollar, the most since the five days ended April 5, prices from local banks compiled by Bloomberg show.
The currency traded at a 0.6 percent premium to one-month non-deliverable forwards, which fell 0.6 percent in the five days to 9,795 per dollar, the biggest drop since the week through March 22, data compiled by Bloomberg show. The spot rate and the forwards slipped 0.1 percent today.
A daily fixing used to settle the derivatives was set at 9,744 today by the Association of Banks in Singapore, compared with 9,720 on April 26.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped three basis points, or 0.03 percentage point, to 5.64 percent. It rose 10 basis points today.
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