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Indonesia Bonds Rise for Fourth Day After Auction; Rupiah Steady

Indonesia’s two-year bonds advanced for a fourth day, the longest winning streak since February, after the government rejected offers at a debt auction last week in a sign it can tame inflation.

The benchmark notes began the rally after the finance ministry raised 4.5 trillion rupiah ($463 million) in an April 9 debt auction, shy of its 7 trillion rupiah target. Investors asked for yields as high as 5.50 percent for five-year bonds and the average bid accepted was 5.23 percent. All bids for debt maturing in 2023 were rejected by the government. Consumer prices gained 5.90 percent last month, the most since May 2011.

“The government limited the supply and refused to grant the higher rates demanded, showing confidence inflation will ease,” said Herdi Wibowo, head of debt capital markets at PT BCA Sekuritas, a unit of the nation’s largest bank by market value. “Inflation will not accelerate from March as food prices should already moderate.”

The yield on the 11 percent bonds due October 2014 dropped six basis points, or 0.06 percentage point, to 4.37 percent as of 3:56 p.m. in Jakarta, the lowest since April 4, data from the Inter Dealer Market Association show.

The cost to insure Indonesia’s debt using five-year credit-default swaps fell 16 basis points last week to 143, the biggest decline since November, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The rupiah traded at 9,712 per dollar, little changed from the April 12 close of 9,713, prices from local banks compiled by Bloomberg show. It traded at a 0.1 percent premium to the one-month non-deliverable forwards, which were steady at 9,721 per dollar, according to data compiled by Bloomberg.

A daily fixing used to settle the derivatives was set at 9,714 by the Association of Banks in Singapore from 9,710 on April 12. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed seven basis points to 5.94 percent.

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