Indonesian Bonds Decline as Europe Crisis Worsens; Rupiah Steady

Indonesia’s government bonds declined and the rupiah was steady as concern Europe’s debt crisis will worsen damped demand for riskier assets.

The Jakarta Composite Index of shares dropped 1.8 percent yesterday, the most in a month, as overseas investors sold $14 million more local stocks than they bought, according to exchange data. The gauge was up 0.2 percent today. Moody’s Investors Service revised its rating outlooks for Germany, the Netherlands and Luxembourg to negative on “rising uncertainty” over the credit crisis in the euro area, it said in a statement yesterday.

“The rupiah is being driven by another round of risk aversion,” said Artanavaro Gasali, the Jakarta-based head of global markets at PT Bank ICBC Indonesia. “Germany is among the most stable and powerful economies in the euro area, so its downgrade definitely caused some concern.”

The yield on the government’s benchmark 10-year bonds rose one basis point, or 0.01 percentage point, to 5.82 percent, according to data compiled by Bloomberg. That was the highest level in a week.

The rupiah traded at 9,450 per dollar as of 9:44 a.m. in Jakarta, compared with 9,455 yesterday, prices from local banks compiled by Bloomberg show. One-month implied volatility, which measures exchange-rate swings used to price options, was steady at 8 percent.

Bank Indonesia received approval from the People’s Bank of China to invest in the interbank Chinese bond market, according to statements from both central banks yesterday.

“Aside from diversifying its holdings, Bank Indonesia may wish to invest in yuan-denominated notes for the prospect of currency gains ahead of 2015, when the yuan will be internationalized,” Gasali said.

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

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