Indonesia’s bonds completed the best week in a month after the Federal Reserve expanded its asset-purchase program, boosting the prospect of capital flows into higher-yielding assets.
The yield on the notes due in 2022 fell to a 10-month low after global funds added 3.35 trillion rupiah ($348 million) to their local-currency debt holdings this month through Dec. 11, Finance Ministry data show. The Fed will start buying $45 billion of Treasuries each month starting in January, it said on Dec. 12. Bank Indonesia held its benchmark rate at a record-low 5.75 percent for a 10th straight meeting on Dec. 11. Central bank rates are near zero in the U.S. and Japan.
“The Fed move will be supportive of high-yield assets, but we expect limited gains in the bond market as the yields are already very tight,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “We want to hear more hawkish statements from Bank Indonesia, as any further disappointment on that front will weigh on the rupiah.”
The yield on the government’s 7 percent bonds maturing in May 2022 declined 12 basis points, or 0.12 percentage point, this week to 5.24 percent, the biggest drop since the five days ended Nov. 16, closing prices from the Inter Dealer Market Association show. The yield dropped three basis points today.
Bank Indonesia plans to begin redenominating the currency in 2014, where each new unit would equate to 1,000 rupiah, pending parliamentary approval, Perry Warjiyo, executive director for economic research and monetary policy, told reporters in Jakarta today.
The rupiah strengthened 0.2 percent today and this week to 9,640 per dollar as of 4:05 p.m. in Jakarta, after reaching a three-year low of 9,733 on Dec. 10, prices from local banks compiled by Bloomberg show.
One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose 33 basis points this week to 5.70 percent, the highest level since Oct. 30. It was unchanged today.