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Indonesia Two-Year Bond Has Weekly Advance on Inflation Outlook

The yield on Indonesia’s two-year government bonds dropped for a second week as speculation inflation will quicken spurred demand for shorter-dated debt. The rupiah was little changed.

Indonesia may raise gasoline prices for privately owned cars by around 50 percent to cut fuel subsidies, Energy and Mineral Resources Minister Jero Wacik said April 16. Consumer prices rose 5.9 percent in March from a year earlier, the biggest increase in 22 months, official data show. Foreign investors pumped the most money into rupiah-denominated notes last week since 2011 as Japanese funds sought higher yields with cash generated by central bank stimulus.

“Quickening inflation pressures are making investors search for shorter tenors, so the yields are going down further,” said Herdi Wibowo, head of debt capital markets in Jakarta at PT BCA Sekuritas, a unit of the nation’s largest bank by market value.

The yield on the 11 percent bonds due October 2014 dropped five basis points, or 0.05 percentage point, this week to 4.38 percent as of 4:08 p.m. in Jakarta, according to prices from the Inter Dealer Market Association. The yield was little changed today. The rate on 10-year notes declined two basis points this week to 5.45 percent.

Overseas investors bought 6.2 trillion rupiah ($643 million) more local-currency sovereign notes than they sold last week, finance ministry data show, after the Bank of Japan said on April 4 that it would buy 7.5 trillion yen ($76 billion) of debt per month.

Rupiah Strengthens

The rupiah strengthened 0.1 percent today and was steady this week at 9,713 per dollar, according to prices from local banks compiled by Bloomberg. It traded at a 0.1 percent premium to one-month non-deliverable forwards, which rose 0.3 percent to 9,720 today, data compiled by Bloomberg show.

A daily fixing used to settle the derivatives was set at 9,708 by the Association of Banks in Singapore from 9,721 yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased four basis points to 5.84 percent. It fell three basis points this week.

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