Indonesia Sells $1 Billion of Debt at Top Yield Since 2010

Indonesia sold $1 billion of 10-year dollar bonds at the highest yield since 2010 as speculation the Federal Reserve will pare stimulus curbs demand for emerging-market assets.

The country issued the notes due October 2023 to yield 5.45 percent, or 2.87 percentage points more than 10-year U.S. Treasuries, Robert Pakpahan, director general at the debt management office in Jakarta, said in a mobile-phone text message. That was the highest rate for a 10-year bond from Indonesia since it paid 6 percent in January 2010, data compiled by Bloomberg show.

Emerging-market sovereign bonds have tumbled since May 22, when the Fed signaled plans to scale back $85 billion a month of debt purchases that drove borrowing costs to record lows. The extra yield paid at the most recent sale is more than a full percentage point above the 1.75 percentage point premium the country paid in April, when it sold notes to yield 3.5 percent, Indonesia’s lowest-ever rate for a non-Islamic offering.

The government chose to sell now because of uncertainty about what market conditions will be like later this year, Pakpahan said. Indonesia allocated 49 percent of the notes to U.S. investors, 25 percent to Asia and 26 percent to Europe, and bids totaled $1.9 billion, he said.

Negative Returns

Indonesian dollar bonds have declined 13 percent this year, the most among 11 Asian developing economies tracked by HSBC Holdings Plc indexes. The yield on the notes due October 2023 dropped to 5.28 percent on the first day of trading today, while the rate on the 10-year notes sold in April fell seven basis points to 5.07 percent, prices compiled by Bloomberg show.

“Bond yields are going higher everywhere in the region, and even if Indonesia has strong fundamentals, no one is immune,” Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong, said before the sale.

Standard & Poor’s rated Indonesia’s latest offer at BB+, one step below investment grade, due to the nation’s “weak policy environment, and high and rising external leverage,” it said in a statement today. Moody’s Investors Service and Fitch Ratings have given Indonesia the lowest investment grade.

The average yield on emerging-market dollar notes issued by governments touched 6.17 percent on June 24, the highest since October 2011, before falling to 5.89 percent yesterday, according to the JPMorgan Emerging Markets Bond Index. It is still 137 basis points higher than at the end of April.

More Sales

The country sold both 10- and 30-year dollar bonds in April. This time, it only offered 10-year securities to tap stronger demand for that maturity, Pakpahan said.

The government is forecasting a budget deficit of 2.4 percent of gross domestic product this year, which would be the most in data compiled by Bloomberg going back to 2004.

Indonesia will also sell global sukuk in the second half of 2013, Pakpahan said on July 5. A $500 million onshore offer of dollar-denominated debt is also planned for October.

The government hired Standard Chartered Plc, JPMorgan Chase & Co. and Barclays Plc to manage its dollar bond sale, Pakpahan said.

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