Indonesia’s rupiah completed its best week since June 2009 on speculation the Federal Reserve will delay cutting stimulus. Government bonds rallied, pushing the 10-year yield to an almost four-month low.
The currency strengthened the most since Sept. 19 today after global funds increased their sovereign debt holdings to a record 309.05 trillion rupiah ($28.1 billion) yesterday. Overseas investors bought more local stocks than they sold this week through Oct. 24, the first net inflow in a month. The Fed will postpone a plan to pare its $85 billion a month of bond buying to March, an Oct. 17-18 Bloomberg survey showed, instead of December as predicted by a similar poll last month.
“We will probably see a further reprieve for the rupiah over the next one to two months as the market has pushed their expectation for Fed tapering into next year,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. Demand for emerging-market assets has improved as international “investors are looking for some additional yield to tide them over,” he said.
The rupiah strengthened 2.8 percent since Oct. 18 to 11,015 per dollar as of 4:37 p.m. in Jakarta, beating all 24 emerging-market currencies tracked by Bloomberg, prices from local banks show. One-month non-deliverable forwards rose 1.5 percent to 10,795, 2 percent stronger than the spot rate, data compiled by Bloomberg show. The onshore spot rate rallied 1.2 percent today.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 146 basis points this week to 12.84 percent, data compiled by Bloomberg show. A fixing used to settle the forwards was set at 10,906 per dollar, compared with 10,866 on Oct. 18, according to the Association of Banks in Singapore.
The yield on Indonesia’s 5.625 percent bonds due May 2023 dropped 37 basis points, or 0.37 percentage point, this week to 7.09 percent, the lowest level since July 1, prices from the Inter Dealer Market Association show. The cost to insure the nation’s debt against non-payment using five-year credit-default swaps fell nine basis points from Oct. 18 to 188 yesterday, the least since June 6, according to data provider CMA.
Overseas funds added 7.23 trillion rupiah to local-currency debt holdings this week through yesterday, official data show. The nation’s rupiah bonds are leading gains in Asia this month as slowing inflation, a rebounding currency and the maintenance of U.S. stimulus attract Deutsche Asset & Wealth Management to Eastspring Investments.
“We’re seeing a lot of foreign funds come in as they shift their portfolio to hold more higher-yielding assets,” said Fahrudin Haris Prastowo, a Jakarta-based fixed-income trader at PT Bank Rakyat Indonesia. “Indonesia’s fundamentals are showing signs of improvement so investors feel more comfortable.”