Indonesia’s 10-Year Bond Yield at Two-Month Low on Fund Inflows

Indonesia’s 10-year bond yield traded at a two-month low on optimism exports will pick up as the region’s biggest economies step up efforts to spur growth.

Global funds added 3.92 trillion rupiah ($408 million) to holdings of government debt this month through Oct. 19, Finance Ministry data show. Japan is asking the central bank to boost its asset-purchase program, local newspaper Sankei reported today. The nation is Indonesia’s second-largest non-oil export destination. Southeast Asia’s largest economy recorded its third consecutive current-account deficit in the second quarter as exports contracted for a fifth straight month through August.

“Demand for Indonesia’s bonds is still strong on positive sentiment,” said Dian Ayu Yustina, a fixed-income analyst at PT Bank Danamon Indonesia in Jakarta. “We predict the balance of payment situation will improve to see smaller deficits so long as neighboring countries stabilize.”

The yield on the government’s 7 percent bonds due May 2022 was little changed at 5.75 percent, the lowest level since Aug. 10, according to closing prices from the Inter Dealer Market Association. That’s the same level as Bank Indonesia’s benchmark interest rate, which was held at a record-low for an eighth month on Oct. 11.

The rupiah traded at 9,608 per dollar as of 4:41 p.m. in Jakarta, after closing at 9,605 yesterday, prices from local banks compiled by Bloomberg show. One-month implied volatility, which measures exchange-rate swings used to price options, held at 6.25 percent.

“The rupiah will remain weak and underperform the rest of the region,” said Prakriti Sofat, a regional economist at Barclays Plc in Singapore. The currency will decline to 9,800 in six months as the nation records current-account shortfalls through 2012, she said.

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