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Indonesia 10-Year Bond Yield Falls to Eight-Month Low on Inflows

Indonesia’s bonds rose, sending the 10-year yield to an eight-month low, on speculation the Southeast Asian nation’s relatively high interest rates will attract overseas investors.

Global funds boosted holdings of local-currency sovereign debt by almost 15 trillion rupiah ($1.6 billion) this quarter to 255.6 trillion rupiah on Nov. 8, finance ministry data show. Bank Indonesia has kept its benchmark interest rate unchanged at 5.75 percent since February. Central bank rates are at 2.75 percent in Thailand and South Korea and at 3 percent in China. The rupiah dropped, adding to four weeks of declines.

“Indonesian bonds are rising because foreign funds are buying the debt for better yields relative to those in other countries in the region,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “The demand for bonds will help limit the rupiah’s weakness in the short-term.”

The yield on the government’s 7 percent bonds maturing in May 2022 dropped three basis points, or 0.03 percentage point, to 5.52 percent, according to prices from the Inter Dealer Market Association. That’s the lowest level since March. The notes still pay almost 4 percentage points more than similar-maturity U.S. Treasuries.

The rupiah fell 0.2 percent to 9,638 per dollar as of 3:23 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. The currency lost 0.1 percent last week.

One-month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 4.80 percent, the lowest level since September 2008.

Bank Indonesia may gradually raise the rate it pays lenders on overnight deposits while keeping the benchmark unchanged, Deputy Governor Hartadi Sarwono said in an interview in Jakarta on Nov. 9.

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