Indonesia’s 10-Year Bonds Fall on Inflation Fears; Rupiah Drops

Indonesia’s 10-year government bonds had their biggest weekly decline in almost two years, as overseas funds trimmed holdings of the nation’s assets on concern inflation will quicken. The rupiah slid for a third week.

The yield on the debt surged to the highest level since May 2010. Offshore ownership of Indonesian government bonds fell to 191.34 trillion rupiah ($21.1 billion) as of Jan. 14 from 198.75 trillion on Jan. 7, finance ministry data show.

“We’ve seen quite a bit of sell-off in the Indonesian stock and bond markets,” said Gundy Cahyadi, a Singapore-based economist at Oversea-Chinese Banking Corp. “The market is seemingly looking at whether or not Bank Indonesia will make a rate hike to manage inflation.”

The yield on the 8.25 percent security due July 2021 advanced 75 basis points this week to 9.2 percent, the biggest five-day gain since February 2009. The rate is at its highest level since May. 28 for the benchmark 10-year bond, according to data compiled by Bloomberg. The price fell 4.9335 or 49,335 per 1 million rupiah face amount, to 93.6975 according to closing prices from the Inter Dealer Market Association. A basis point is 0.01 percentage point.

Indonesia’s 10-year bond yields jumped 159 basis points so far this month, the most since February 2009, climbing above India’s to the highest among the 10 biggest economies in Asia excluding Japan.

Behind the Curve

Bank Indonesia left its policy rate unchanged for a 17th consecutive meeting on Jan. 5 even as consumer prices rose 6.96 percent, the fastest pace in 20 months, in December. The central bank will review its lending rate next on Feb. 4.

Global funds sold $425 million more local stocks than they bought this month, according to exchange data.

“The sentiment is still going to be quite weak for the rupiah,” Cahyadi said. “People are getting a bit concerned that Bank Indonesia is behind the curve.”

The rupiah declined 0.1 percent this week to 9,080 per dollar as of 4:46 p.m. in Jakarta, according to data compiled by Bloomberg. The currency lost 0.2 percent today. It traded at 9,105 earlier, the weakest level in a week.

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