Indonesian Bonds Fall on Inflation; Rupiah Set for Monthly Drop

Indonesia’s government bonds declined, pushing the 10-year yield to the highest level in more than a month, on concern inflation accelerated in January. The rupiah is poised for its 11th monthly loss of the past year.

Consumer prices gained 4.47 percent this month compared with 4.3 percent in December, according to a Bloomberg news survey before official data due tomorrow. The government should try to increase subsidized fuel prices early this year, Trade Minister Gita Wirjawan said last week, adding that President Susilo Bambang Yudhoyono has met with the energy, finance and economy ministers on the issue.

“The market’s attention has shifted to inflation,” said Dian Ayu Yustina, a fixed-income analyst at PT Bank Danamon Indonesia in Jakarta. “The yields on Indonesian bonds may begin climbing to adjust for inflation, with the 10-year yield reaching 5.5 percent.”

The yield on the 5.625 percent sovereign debt due May 2023 climbed three basis points, or 0.03 percentage point, to 5.31 percent, the highest level since Dec. 12, according to closing prices from the Inter Dealer Market Association. The benchmark 10-year yield rose 12 basis points in January, ending a four- month decline.

The rupiah’s one-month non-deliverable forwards fell 0.1 percent today to 9,815 per dollar as of 4:33 p.m. in Jakarta, data compiled by Bloomberg show. That’s 0.8 percent weaker than the spot rate, which declined 0.7 percent to 9,740, prices from local banks show.

A daily fixing used to settle the derivative contracts was set at 9,799 today by the Association of Banks in Singapore. The rupiah’s onshore spot rate fell 1.1 percent in January, following a 5.9 percent loss in 2012, and the forwards strengthened 0.1 percent.

Indonesia will start hedging interest payments on overseas debt against currency swings this year to prevent the budget deficit from widening beyond estimates, Bambang Brodjonegoro, head of fiscal policy, told reporters in Jakarta yesterday.

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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