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Indonesian Bonds Complete Monthly Drop on Trade Deficit Concern

Indonesia’s bonds fell this month, with the 10-year yield jumping the most since May, and the rupiah dropped after global funds sold the nation’s assets on concern the trade deficit will widen.

The yield reached the highest in more than 10 weeks yesterday after overseas investors withdrew 570 billion rupiah ($60 million) from sovereign debt holdings this month through Aug. 29, poised for the biggest outflow since May, Finance Ministry data show. Indonesia probably recorded a trade shortfall of $1.5 billion in July, from $1.3 billion the previous month, according to the median estimate of 17 economists in a Bloomberg survey ahead of data due Sept. 3.

“The market is bearish on Indonesian bonds,” said Artanavaro Gasali, the head of global markets at PT Bank ICBC Indonesia. “Continuing deficits will shrink market confidence, which will trigger significant capital outflows.”

The yield on the government’s 7 percent bonds due May 2022 climbed 56 basis points in August, or 0.56 percentage point, to 6.28 percent, closing prices from the Inter Dealer Market Association show. The yield reached 6.29 percent yesterday, the highest since June 20, and rose 27 basis points this year and two basis points today.

The rupiah is the worst performer among Asia’s 11 most-traded currencies for the month and year, declining 1 percent in August and 5.2 percent in 2012, prices from local banks compiled by Bloomberg show. The currency gained 0.4 percent today to 9,535 per dollar as of 4:17 p.m. in Jakarta.

One-month implied volatility, which measures exchange-rate swings used to price options, fell 25 basis points this month, or 0.25 percentage point, to 7.25 percent. The gauge was unchanged today.

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