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Indonesian Bonds Drop on Inflation, Fund Selling; Rupiah Steady

Indonesia’s bonds dropped, pushing the 10-year yield to a three-month high, after global funds reduced holdings of the nation’s assets on concern faster inflation will erode returns. The rupiah was little changed.

Overseas investors sold $34 million more local shares than they bought yesterday and pared 780 billion rupiah ($85 million) from their holdings of government debt last week, exchange and finance ministry data show. Bank Indonesia predicts consumer-price gains will reach 6.6 percent this year if fuel prices are raised, compared with 3.97 percent last month, Governor Darmin Nasution said on April 12.

“Continued uncertainty over fuel subsidies and higher inflation expectations have investors expecting less real return, which creates negative sentiment for Indonesian assets,” said Taufan Tito, a foreign-exchange dealer at PT Bank Rakyat Indonesia in Jakarta.

The yield on the government’s 7 percent bonds due May 2022 climbed one basis point, or 0.01 percentage point, to a three-month high of 6.12 percent, according to final prices from the Inter Dealer Market Association. That’s the highest level since Jan. 16, two days before the nation was returned to investment grade by Moody’s Investors Service. The yield has climbed 18 basis points this month.

Bank Indonesia is shifting its policy focus to controlling inflation rather than supporting economic growth, Perry Warjiyo, director of economic research and monetary policy, said in Jakarta today.

The rupiah was little changed at 9,173 per dollar as of 4:32 a.m. in Jakarta, after declining as much as 0.2 percent earlier, according to prices from local banks compiled by Bloomberg. One-month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 6.75 percent for a ninth day.

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