Indonesia Yield at Highest Since 2011 on Rate-Rise Speculation

Indonesia’s bonds declined, pushing the 10-year yield to the highest level since September 2011, on concern the central bank will raise borrowing costs next week.

Bank Indonesia will strengthen its policy mix at a monthly board meeting on July 11 as a preemptive measure against accelerating inflation due to a June 22 increase in fuel prices, Governor Agus Martowardojo said in a statement on the monetary authority’s website yesterday. The central bank is likely indicating it will raise the floor for its deposit facility rate, or Fasbi, from the current 4.25 percent, Destry Damayanti, chief economist at PT Bank Mandiri, said today.

“They are signaling that they can be more aggressive in their tightening,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “Bank Indonesia hasn’t given details, but it is positive that they still have many instruments in their toolbox to manage inflation.”

The yield on the 5.625 percent notes due May 2023 climbed four basis points, or 0.04 percentage point, to 7.26 percent as of 10:16 a.m. in Jakarta, the highest level since Sept. 23, 2011, prices from the Inter Dealer Market Association show.

The finance ministry exceeded its target at a bond sale yesterday for the first time since May, raising 9.75 trillion rupiah ($976 million) compared with the 7 trillion-rupiah goal. The government sold 10-year bonds in the auction at a weighted average yield of 7.20 percent, according to Robert Pakpahan, director general at the debt management office.

The rupiah declined 0.1 percent to 9,938 per dollar, prices from local banks compiled by Bloomberg show. It traded at a 2.2 percent premium to its one-month non-deliverable forwards, which fell 0.6 percent to 10,165, according to data compiled by Bloomberg.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, dropped 57 basis points to 12.17 percent, according to data compiled by Bloomberg.

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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