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Indonesia Bonds Gain as Funds Seek Higher Returns; Rupiah Falls

Indonesia’s bonds advanced, pushing the 10-year yield to a two-month low, on speculation foreign funds are chasing higher returns as other Asian central banks cut interest rates. The rupiah weakened.

Overseas investors added 3.59 trillion rupiah ($374 million) to their sovereign debt holdings this month through Oct. 16, finance ministry data show. Thailand unexpectedly cut borrowing costs yesterday, following South Korea last week, while the Philippines’ central bank governor said Oct. 10 there was room to lower rates. Bank Indonesia kept its reference rate unchanged for an eighth month on Oct. 11.

“Indonesia’s rates remain higher compared with other emerging markets in Asia,” said Nurul Eti Nurbaeti, the head of treasury research at PT Bank Negara Indonesia in Jakarta. “The rupiah will remain range-bound as the central bank guards against volatility.”

The yield on the government’s 7 percent bonds due May 2022 dropped one basis point, or 0.01 percentage point, to 5.76 percent, the lowest level since Aug. 10, according to closing prices from the Inter Dealer Market Association.

The rupiah declined 0.2 percent to 9,588 per dollar as of 4:11 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. The currency touched 9,657 last week, the lowest level since October 2009. One-month implied volatility, which measures exchange-rate swings used to price options, held at 6 percent.

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