Indonesia Bonds Gain as Default Risk Plunges to Least Since June

Indonesia’s 10-year bonds rose for a seventh day after inflation slowed and the cost to insure the nation’s debt against default dropped to the least since June.

The yield on the 8.375 percent government notes due March 2024 slid seven basis points, or 0.07 percentage point, to 8.04 percent as of 4:12 p.m. in Jakarta, according to the Inter Dealer Market Association. That was the lowest since Nov. 8.

Five-year credit-default swaps on Indonesian debt fell 10 basis points to 183 yesterday, the least since June 4, 2013, according to data provider CMA. Global funds boosted holdings of the nation’s local-currency bonds to 34 percent of the total outstanding, the highest proportion since June, data compiled by Bloomberg show. Inflation (IDCPIY) slowed to 7.75 percent last month, from 8.22 percent in January, according to an official report.

“Foreign investors are realizing that Indonesia’s fundamentals have significantly improved,” said Fahrudin Haris Prastowo, a Jakarta-based fixed-income dealer at PT Bank Rakyat Indonesia. “Bonds may be volatile through mid-year, before rallying further once election uncertainties are resolved.”

Indonesians will vote for a new legislature in April before a presidential election in July.

The rupiah gained 0.1 percent to 11,582 per dollar, prices from local banks show. In the offshore market, one-month non-deliverable forwards rose 0.4 percent to 11,603, 0.2 percent weaker than the onshore rate, data compiled by Bloomberg show.

A fixing used to settle the forwards was set at 11,580 per dollar by the Association of Banks in Singapore today, the same as Bank Indonesia’s reference. The ABS benchmark was 11,659 yesterday, while the central bank’s was 11,647.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped four basis points to 10.98 percent, data compiled by Bloomberg show.

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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