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Indonesian Rupiah Snaps Six-Week Decline on Bond Fund Inflows

Indonesia’s rupiah rose this week, halting its longest losing streak since December 2010, after foreign funds pumped money into the nation’s debt at a time when issuance is tailing off. Government bonds rallied.

The yield on the five-year notes reached an eight-month low today after overseas investors added 1.61 trillion rupiah ($168 million) to their holdings of local-currency sovereign notes this week, taking ownership to an all-time high of 268.44 trillion rupiah, finance ministry data show. The government has sold 98.9 percent of its 2012 bond sales target with only one more auction this year, Loto Srianita Ginting, director of government securities at the debt management office, said yesterday.

“Optimism on the global economy spurs demand for emerging-market debt, including Indonesia’s, which supports the rupiah,” said Gusti Kahari, a foreign-exchange dealer at PT Bank Artha Graha Internasional in Jakarta. “Bonds can rally further due to the limited supply ahead.”

The rupiah strengthened 0.7 percent this week to 9,592 per dollar as of 4:20 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. The currency advanced 0.1 percent today and 0.2 percent this month. The rupiah has declined for the past six weeks.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose 10 basis points, or 0.10 percentage point, this week to 4.60 percent. It climbed 20 basis points today and dropped 40 basis points in November.

The yield on the government’s 10 percent notes due July 2017 fell seven basis points this week to 4.99 percent, the lowest level since Feb. 23, closing prices from the Inter Dealer Market Association show. The yield lost five basis points today and retreated 45 basis points this month, the biggest decline since January.

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