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Indonesia Two-Year Bond Yield at Six-Month Low on Lack of Supply

Nov. 27 (Bloomberg) -- Indonesian government bonds advanced, pushing the yield on the two-year notes to a six-month low, after the finance ministry canceled an auction scheduled for today and bought sovereign debt in the secondary market.

The ministry announced on Nov. 23 it was calling off the sale of rupiah-denominated securities. Overseas investors boosted their holdings of local-currency government bonds by 14.03 trillion rupiah ($1.5 billion) this month to a record 264.36 trillion rupiah as of Nov. 21, finance ministry data show. The two-year yield has fallen 40 basis points in November.

“Investors are seeking to buy bonds more aggressively because of limited supply,” said Nurul Eti Nurbaeti, the head of treasury research at state-owned PT Bank Negara Indonesia in Jakarta. “Gains in bonds will be limited from now on as the recent rally has been quite strong.”

The yield on Indonesia’s 11 percent bonds due October 2014 fell four basis points, or 0.04 percentage point, to 4.84 percent, the lowest level since May 15, according to closing prices from the Inter Dealer Market Association.

The government bought 500 billion rupiah of four-year sovereign bonds from the secondary market today to organize its portfolio of securities, according to a statement on the debt management office’s website.

The rupiah was steady at 9,600 per dollar as of 4:58 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. It touched 9,583 earlier, the strongest level since Nov. 14. One-month implied volatility, a measure of expected moves in exchange rates used to price options, held at a four-year low of 4.40 percent.

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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