The yield premium investors demand to hold Indonesia’s 10-year bonds over two-year notes widened to the most since June on concern inflation will accelerate due to planned changes in fuel policy. The rupiah declined.
The government is considering ways to reduce the burden of subsidies on the budget, including restricting subsidized-fuel usage and increasing prices, Bambang Brodjonegoro, head of fiscal policy at the finance ministry, said April 3. Consumer prices rose 5.9 percent last month from a year earlier, the most since May 2011, official data show.
“The short-end of the yield curve will be under pressure as investors are concerned over inflation expectations, so this steepening will continue,” said Suriyanto Chang, the head of treasury at PT Bank QNB Kesawan in Jakarta. “Whatever adjustment they do to the fuel policy, to raise prices or not, will still boost inflation expectations.”
The difference in yields between bonds due October 2014 and May 2023 reached 121 basis points as of 10:01 a.m. in Jakarta, the biggest gap since June 19, according to prices from the Inter Dealer Market Association. The spread widened eight basis points since March 28, with the yield on the two-year notes falling 11 basis points to 4.33 percent, while the 10-year yield declined three basis points to 5.54 percent. March 29 was a public holiday in Indonesia.
The rupiah fell 0.4 percent this week and was steady today at 9,753 per dollar, prices from local banks compiled by Bloomberg show. Bank Indonesia will use its foreign-exchange reserves to keep the currency from weakening beyond 10,000 per dollar this year, Jahja Setiaatmadja, president director of PT Bank Central Asia, the nation’s largest lender by market value, said in an interview yesterday.
The rupiah traded at a 0.5 percent premium to its one-month non-deliverable forwards, which dropped 0.3 percent to 9,805 from March 29, data compiled by Bloomberg show. A daily fixing used to settle the derivatives was set at 9,752 yesterday by the Association of Banks in Singapore, from 9,719 on March 28. Today’s rate will be published 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 24 basis points, or 0.24 percentage point, to 5.97 percent this week.
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