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Indonesia Bonds Drop Most in Three Weeks After S&P Cuts Outlook

Indonesian government bonds fell, with the 10-year yield rising the most in more than three weeks, after Standard & Poor’s cut its outlook on the country’s debt rating. Rupiah forwards dropped by the most since January.

S&P revised its view on the nation’s debt to stable from positive, citing a stalling of reform momentum and a weaker external profile in a statement today. The company maintained Indonesia’s rating at its highest junk level of BB+.

The yield on the 5.625 percent notes due May 2023 rose five basis points to 5.56 percent as of 5:39 p.m. in Jakarta, the most since April 8, prices from the Inter Dealer Market Association show. The yield dropped seven basis points last month after climbing 38 basis points in the first quarter.

“This news may become a turning point for bonds to correct after the rally in April as investors reevaluate Indonesia,” said I Made Adi Saputra, a fixed-income analyst at PT Nusantara Capital Securities in Jakarta. The 10-year yield may reach 5.7 percent by the end of June, he forecast.

The rupiah’s one-month non-deliverable forwards declined 0.5 percent to 9,790 per dollar, the biggest drop since Jan. 28, data compiled by Bloomberg show. They traded at a 0.6 percent discount to the spot rate, which was steady at 9,727 per dollar, prices from local banks compiled by Bloomberg show.

A daily fixing used to settle the derivatives was set at 9,727 today by the Association of Banks in Singapore, compared with 9,722 on April 30. One-month implied volatility for the rupiah, a measure of expected moves in the exchange rate used to price options, dropped six basis points, or 0.06 percentage point, to 5.55 percent.

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