Indonesia Yield Curve Steepest Since June as Inflation Quickens

Indonesia’s yield curve steepened, with the spread between two- and 10-year notes near the widest since June, after inflation quickened to the fastest pace in 20 months. Rupiah forwards rose for the first time in three days.

Consumer prices gained 5.31 percent last month, exceeding the 4.81 percent median estimate in a Bloomberg survey, official data released March 1 showed. DBS Group Holdings Ltd., Southeast Asia’s largest lender, expects the central bank to increase its interbank deposit rate, or Fasbi, in coming months due to quicker inflation, analysts led by David Carbon wrote in a research note yesterday. Bank Indonesia meets on March 7 to review its policy rate.

“The steepening curve is just an effect of inflation as investors seek security in the shorter tenors,” said Herdi Wibowo, head of debt capital markets at PT BCA Sekuritas in Jakarta, a unit of the nation’s largest bank by market value. “There is a possibility that the Fasbi may be raised by 25 to 50 basis points in the first half.”

The difference between the yield on two- and 10-year government notes was 108 basis points as of 3:13 p.m. in Jakarta, data complied by Bloomberg show. It touched 109 basis points on March 1, the widest since June. The yield on the 11 percent bonds due October 2014 dropped two basis points, or 0.02 percentage point, to 4.28 percent, the lowest level for a benchmark two-year note since February 2012, prices from the Inter Dealer Market Association show. The 10-year yield was little changed at 5.37 percent.

Sukuk Sale

The finance ministry plans to raise 1.5 trillion rupiah ($154 million) from an Islamic bond auction today, after a previous sukuk sale failed to meet its target.

The rupiah’s one-month non-deliverable forwards gained 0.2 percent to 9,719 per dollar, data compiled by Bloomberg show. They traded at a 0.2 percent discount to the spot rate, which was steady at 9,704 per dollar, prices from local banks compiled by Bloomberg show. A daily fixing used to settle rupiah derivatives was set at 9,709 by the Association of Banks in Singapore.

One-month implied volatility in the rupiah, which measures expected moves in the exchange rate used to price options, dropped two basis points to 5.81 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE