Indonesia Bonds Set for Worst Quarter in Two Years; Rupiah Drops

Indonesia’s bonds headed for the worst three-month loss in two years on concern a government plan to cut subsidies will spur inflation. The rupiah fell for a seventh quarter in the longest losing streak since 1998.

Contracts measuring the nation’s credit risk climbed to an almost seven-month high as official data showed global investors pared purchases of local debt to 160 billion rupiah ($16 million) this month through March 26, from 8.43 trillion rupiah in February. Indonesia is considering steps to limit subsidized- fuel usage while not ruling out price increases, Finance Minister Agus Martowardojo said last week. Consumer prices gained 5.31 percent in February, the most in 20 months, the latest figures show.

“There is no clear indication on what will be done to fuel subsidies, but inflation will start rising from the February high even before any real changes in policy,” said Billie Fuliangsahar, the head of treasury at PT Rabobank International Indonesia in Jakarta. “I still see current yields as too low, considering the risks.”

The yield on the 5.625 percent bonds due May 2023 climbed 41 basis points since Dec. 31 to 5.60 percent as of 8:56 a.m. in Jakarta, the most since the three months through March 2011, prices from the Inter Dealer Market Association show. The yield rose 25 basis points in March and fell one basis point today. Local financial markets are shut tomorrow for a holiday.

Five-year credit-default swaps on Indonesia’s debt rose 24 basis points this quarter to 160 basis points yesterday, the highest since Sept. 5, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Rupiah Falls

The rupiah weakened 0.9 percent this quarter to 9,724 per dollar, prices from local banks show. It traded at a 0.5 percent premium to the one-month non-deliverable forwards, which rose 0.6 percent in the same period to 9,771, data compiled by Bloomberg show. Both the spot rate and the forward contracts advanced 0.1 percent today.

Bank Indonesia increased dollar supply in the domestic market in January to support the rupiah and reduce the gap between its local and overseas rates, which reached the widest since September 2011 at 2.6 percent on Jan. 11, Hendar, executive director for monetary policy, said that month.

A daily fixing used to settle the derivatives was set at 9,730 yesterday by the Association of Banks in Singapore, compared with 9,753 the previous day and 9,792 on Dec. 31. Today’s rate will be released at 11:30 a.m. in the city-state.

One-month implied volatility for the rupiah, a measure of expected moves in the exchange rate used to price options, climbed three basis points, 0.03 percentage point, this quarter to 5.78 percent. It dropped eight basis points 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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