Japanese households bought the most rupiah-denominated notes in 19 months as polls suggest Indonesia is set to elect a pro-reform president next month.
Sales of the uridashi bonds, securities targeted at retail investors in Japan offering higher yields than near-zero rates at home, jumped to $58.1 million in May, from $1.92 million the previous month and the most since $72 million in October 2012, according to data compiled by Bloomberg.
Joko Widodo, who broke ground on a commuter rail system delayed for decades and dismissed senior officials for poor performance as governor of Jakarta since 2012, led rival Prabowo Subianto 50 percent to 41 percent in a poll by Deutsche Bank AG released this week. Prabowo sees Southeast Asia’s largest economy as “underleveraged” and would raise its debt as a percentage of the economy, his economic adviser said this month.
“Positive election sentiment, built on expectations that reform-oriented Widodo will become the country’s new leader, has given Indonesian bond and currency performance a boost this year,” Bertram Sarmago, a fixed-income investment director at Nikko Asset Management Asia Ltd., whose parent company has $158 billion under investment, said by e-mail on June 9.
Five-year Indonesian rupiah Treasury notes yielded 7.6 percent yesterday, the highest after India among the 10 biggest Asia-Pacific economies. The rupiah has rallied 3 percent this year, the most in Asia against the U.S. dollar after the Indian rupee and the South Korean won, ahead of Indonesia’s July 9 presidential election.
The biggest seller of uridashi notes in the Indonesian currency among three issuers in May was Svensk Exportkredit AB, Sweden’s export-financing arm, followed by Kommunalbanken AS. The coupon payments and the redemption of these bonds are all in yen.
“Why do we issue lots of these Indonesia rupiah notes at the moment?” Richard Anund, a senior director based in Singapore, who oversees Svensk Exportkredit’s funding and lending activities in Asia, said in a June 11 interview. “That’s simply because that’s what investors want to have.”
Svensk Exportkredit’s five-year notes, which settle on June 27, pay a 7.08 percent coupon and were issued at par. Japanese corporate bonds maturing in three to five years yield 0.35 percent on average, according to Bank of America Merrill Lynch indexes.
“The number one thing in Mrs. Watanabe’s head is yield,” said Wellian Wiranto, an economist in Singapore at Oversea-Chinese Banking Corp., referring to housewives in Japan.
For carry trades, Japanese investors have become more open to units such as the rupiah as the appeal of currencies including the Australian dollar has fallen, Wiranto said. Carry trade refers to when investors sell a currency with a relatively low interest rate such as the yen and use the funds to buy higher-yielding assets in a different currency.
The appeal of rupiah uridashi bonds has increased as Indonesia’s central bank has raised interest rates, Wiranto said. Policy makers boosted the benchmark rate to 7.5 percent in November, the highest since 2009, and has kept it there since.
Investors have signaled support for frontrunner Widodo. The Jakarta Composite index of shares surged 3.2 percent when his candidacy was announced on March 14.
“By next month, at least we’re going to know who is going to rule Indonesia for the next five years, and we’ll roughly know what kind of policies they’re going to pursue,” Oversea-Chinese Banking’s Wiranto said.