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Indonesian 10-Year Bond Yield Drops to 4-Week Low; Rupiah Falls

Indonesia’s bonds advanced, pushing the yield on 10-year notes to the least in four weeks, after the central bank maintained its reference rate at a record low for a seventh month. The rupiah weakened.

Global funds added 1.32 trillion rupiah ($138 million) to their local debt holdings in the first two days of this week, poised to extend inflows for a second week, Finance Ministry data show. Bank Indonesia kept its benchmark interest rate at 5.75 percent to help manage its current-account balance, which widened to a record deficit of $6.9 billion in the second quarter, it said in a statement today. The nation’s trade deficit narrowed to $177 million in July from a record high of $1.3 billion the previous month.

“The stable reference rate and improving trade deficit gives room for bonds to rally,” said Billie Fuliangsahar, the Jakarta-based head of treasury at PT Rabobank International Indonesia. “Bank Indonesia will likely push for more foreign direct investment to plug the current-account deficit.”

The yield on the government’s 7 percent notes due May 2022 declined two basis points, or 0.02 percentage point, to 5.93 percent as of 3:47 p.m. in Jakarta, the lowest level since Aug. 15, prices from the Inter Dealer Market Association show.

The rupiah pared its losses after the central bank decision, falling 0.1 percent to 9,580 per dollar, prices from local banks compiled by Bloomberg show. The currency reached 9,609 earlier, the weakest level since May 31. One-month implied volatility, which measures exchange-rate swings used to price options, held at 5.85 percent, the lowest level since May 2.

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