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Indonesia Two-Year Bond Yield at One-Year Low on Overseas Demand

Indonesian bonds gained, pushing the two-year yield to a one-year low, as speculation the Federal Reserve will maintain a loose monetary policy bolstered demand for higher-yielding assets. Rupiah forwards fell.

Global funds have bought 6.14 trillion rupiah ($632 million) of local-currency sovereign debt this month through Feb. 21, taking foreign ownership to 34 percent, finance ministry data show. That’s near a record 36 percent reached on Sept. 12, 2011. Fed Chairman Ben S. Bernanke will testify to lawmakers today and tomorrow, with all 74 analysts in a Bloomberg survey predicting the U.S. benchmark rate will not exceed 0.25 percent for the rest of the year.

“Foreign holdings of Indonesia’s bonds may surpass the previous record as the Fed is likely to signal continued low interest rates,” said Suriyanto Chang, the head of treasury at PT Bank QNB Kesawan in Jakarta. “Bonds maturing in less than five years are more attractive as the longer tenors may be at risk of volatile fund flows.”

The yield on the government’s 11 percent bonds due October 2014 dropped two basis points, or 0.02 percentage point, to 4.31 percent as of 3:25 p.m. in Jakarta, the lowest level since Feb. 21, 2012, according to prices from the Inter Dealer Market Association. The yield reached an all-time low of 4.18 percent on Feb. 15, 2012.

The Finance Ministry plans to raise 7 trillion rupiah from a debt auction today, it said in a statement on its website.

The rupiah’s one-month non-deliverable forwards declined 0.1 percent to 9,723 per dollar, data compiled by Bloomberg show. The contracts traded at a 0.2 percent discount to the spot rate, which was steady at 9,709, prices from local banks show. A daily fixing used to settle the derivatives was set at 9,705 today, from 9,713 yesterday, by the Association of Banks in Singapore.

One-month implied volatility for the rupiah, which measures expected moves in the exchange rate used to price options, was unchanged at 6.40 percent, the lowest level since Jan. 31.

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