Rupiah Weakens, Indonesian Bonds Decline on Spain Debt Concerns

Indonesia’s rupiah fell for a second day and government bonds declined after Spain’s borrowing costs rose, adding to concern Europe’s debt crisis will worsen and damping appetite for emerging-market assets.

Spain’s 10-year yields surged above 7 percent to reach euro-era records after it reported that bad loans jumped in April to the highest since 1994. Greek politicians begin a second day of talks to form a coalition government that can implement austerity measures tied to a 240 billion euro ($303 billion) bailout.

“The concern has moved from Greece to larger economies like Spain and Italy, which weighs on the rupiah,” said Nurul Eti Nurbaeti, the head of treasury research at PT Bank Negara Indonesia in Jakarta. “We see strong dollar demand constantly as even domestic investors and corporates prefer the dollar over the rupiah to avoid currency risk during uncertain times.”

The rupiah dropped 0.9 percent to 9,470 per dollar as of 4:24 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, held at 12 percent.

Indonesia raised 6.85 trillion rupiah ($728 million) from a debt auction today, exceeding its 5 trillion rupiah target, with investors bidding for 1.9 the amount on offer, according to the debt management office.

The yield on the government’s 7 percent bonds due May 2022 climbed two basis points, or 0.02 percentage point, to 6.38 percent, after reaching a one-month low of 6.36 percent yesterday, according to the Inter Dealer Market Association.

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

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