Indonesian 20-Year Bond Yield Reaches 8-Week High; Rupiah Rises

Indonesia’s 20-year bonds fell, sending the yield to an eight-week high, after global funds reduced their holdings on concern the local currency will weaken due to a growing current-account shortfall. The rupiah advanced.

Overseas investors cut ownership of government debt by 2.5 trillion rupiah ($263 million) on Aug. 23, the most since September, according to data from the finance ministry. The current-account deficit rose to $6.9 billion in the second quarter from $3.2 billion in the three months ended March, the central bank reported Aug. 10. Bank Indonesia raised the rate it pays on interbank deposits to 4 percent this month, narrowing the gap with the benchmark 5.75 percent reference rate.

“The currency risk is still high due to the current- account deficit, so we have seen foreign investors begin to step out,” said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas. “Domestic banks are buying bonds less aggressively because of the rise in the deposit rate.”

The yield on the 8.25 percent bonds due June 2032 climbed nine basis points, or 0.09 percentage point, to 6.83 percent, the highest level since July 2, according to closing prices from the Inter Dealer Market Association. The yield has increased 34 basis points since Aug. 10 when the central bank raised the bottom end of its deposit facility to 4 percent from 3.75 percent.

The rupiah advanced 0.1 percent to 9,515 per dollar as of 4:18 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It reached 9,540 on July 27, the weakest level in eight weeks. One-month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 6.8 percent.

Bank Indonesia expects the rupiah to trade within its current range even without intervention as the currency has begun to enter a “new equilibrium,” Governor Darmin Nasution said today.

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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