Indonesia’s 10-Year Bond Yield Falls to February Low on Inflows

Indonesia’s bonds rose, pushing the 10-year yield to the least since February, on speculation the Federal Reserve’s decision to increase monetary stimulus will spur capital flows into higher-yielding assets.

Overseas funds raised local debt holdings by 3.35 trillion rupiah ($347 million) this month through Dec. 11, following a record inflow of 19.5 trillion rupiah in November, official data show. Investors bid for more than nine times the amount offered at the government’s last securities auction of the year on Dec. 3. Ten-year notes yield 5.23 percent in Indonesia, compared with 1.72 percent on U.S. Treasuries. The Fed announced on Dec. 12 it will start purchasing $45 billion of Treasuries each month starting in January.

“Bonds have room to rally as there is limited supply because there are no more government auctions, while the Fed stimulus increases investor appetite and capital flows into Indonesia,” said Raditya Ariwibowo, a Jakarta-based research analyst in the treasury division at PT Bank Negara Indonesia.

The yield on the government’s 7 percent bonds due in May 2022 fell one basis point, or 0.01 percentage point, to 5.23 percent as of 3:24 p.m. in Jakarta, prices from the Inter Dealer Market Association show. It fell to 5.22 percent earlier, the lowest level since Feb. 15. The yield dropped 80 basis points this year and reached a record low of 5.05 percent on Feb. 9.

Bank Indonesia submitted a proposal to parliament to redenominate the rupiah starting in 2014, with each new unit equating to 1,000 of the existing currency, Perry Warjiyo, executive director for economic research and monetary policy, said on Dec. 14.

The rupiah snapped a two-day gain, weakening 0.1 percent to 9,645 per dollar, prices from local banks compiled by Bloomberg show. The currency reached a three-year low of 9,733 on Dec. 10. One-month implied volatility, a measure of expected moves in exchange rates used to price options, was unchanged at 5.7 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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