Indonesia Two-Year Bond Yield Drops Toward Record Low on Inflows

Indonesia’s bonds gained, pushing the two-year yield to within three basis points of a record low, after global funds pumped money into the nation’s debt.

Overseas investors added 2.17 trillion rupiah ($224 million) to their local-currency sovereign holdings this month through March 8, finance ministry data show. Some 33 percent of the notes are owned by foreign funds, near the highest proportion in a year. The nation’s 10-year bonds yield 5.36 percent, compared with 3.72 percent for Philippine notes and 3.65 percent for Thai securities.

“Great demand from investors seeking to tap Indonesia’s higher yields, compared with other countries in Southeast Asia, will see bonds keep rallying,” said Nurul Eti Nurbaeti, the Jakarta-based head of treasury research at PT Bank Negara Indonesia. “The inflows have been steady so we aren’t too concerned over the high proportion of foreign holdings.”

The yield on Indonesia’s 11 percent bonds due October 2014 fell six basis points, or 0.06 percentage point, from March 11 to 4.21 percent as of 9:05 a.m. in Jakarta, prices from the Inter Dealer Market Association show. That was the biggest drop since Jan. 23 and is close to the 4.18 percent record-low for benchmark two-year notes reached on Feb. 15, 2012. Local markets were closed yesterday for a holiday.

HSBC Holdings Plc is overweight on Indonesian debt as a rally in government securities elsewhere in the region makes it more likely that the nation’s notes will be next, Hong Kong- based rates strategist Pin Ru Tan said in an interview.

The finance ministry plans to sell 7 trillion rupiah of bonds at an auction today, according to a statement on its website.

Rupiah Steady

The rupiah was steady at 9,700 per dollar from March 11, prices from local banks compiled by Bloomberg show. The spot rate was at a 0.1 percent premium to the one-month non- deliverable forwards, which declined 0.1 percent to 9,713, data compiled by Bloomberg show.

A daily fixing used to settle the derivative contracts was set at 9,687 per dollar yesterday by the Association of Banks in Singapore, compared with 9,691 the previous day. Today’s fixing will be published at 11:30 a.m. in the city-state.

The rupiah’s one-month implied volatility, which measures expected exchange-rate swings used to price options, was little changed at 5.68 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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