Indonesia’s bonds gained, pushing the 10-year yield to the lowest level in two months, after U.S. lawmakers agreed to raise the country’s debt limit and avert a default. Rupiah forwards advanced.
Congress voted in favor of a bill to end the 16-day government shutdown, one day before the nation’s borrowing authority was set to lapse. Overseas investors bought 4.16 trillion rupiah ($381 million) more rupiah sovereign debt than they sold last week, the latest finance ministry data show. Inflation, which slowed to 8.4 percent last month, will probably remain below 9 percent through the end of the year, Deputy Finance Minister Bambang Brodjonegoro said Oct. 10.
“Some investors were waiting for more clarity on the U.S. front, so with this deal we expect inflows to continue,” said I Made Adi Saputra, a fixed-income analyst at PT Nusantara Capital Securities in Jakarta. “With the more stable rupiah and manageable inflation, we see the yield curve flattening.”
The yield on the government’s 5.625 percent bonds due May 2023 fell four basis points, or 0.04 percentage point, to 7.80 percent as of 4:08 p.m. in Jakarta, the lowest level since Aug. 13, according to prices from the Inter Dealer Market Association. The rate will probably drop to 7.25 percent by year-end, while the two-year yield will rise to 7 percent from 6.76 percent, Saputra predicted.
One-month non-deliverable forwards on the rupiah rallied 0.7 percent to 11,007 per dollar, 3 percent stronger than the spot rate, data compiled by Bloomberg show. In the onshore market, the rupiah advanced 0.3 percent to 11,331 per dollar, according to prices from local banks.
China’s Dagong Global Credit Rating Co. downgraded U.S. debt, driving concern that Fitch Ratings will follow and prompting the dollar to fall by the most in a month, Citigroup Inc. analyst Valentin Marinov wrote in a note today. The Bloomberg Dollar Index, which tracks the greenback against 10 major counterparts, dropped 0.7 percent today in the biggest decline since Sept. 18.
“Investors are selling dollars today so the rupiah has room to strengthen, but this is temporary,” said Billie Fuliangsahar, head of treasury at PT Rabobank International Indonesia. “Rupiah’s gains will still be limited by dollar demand from local corporates.”
A fixing used to settle the offshore forwards was set at 10,961 per dollar today, the strongest level since Sept. 19, compared with 10,995 yesterday, according to the Association of Banks in Singapore. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped eight basis points to 15 percent, data compiled by Bloomberg show.