Indonesia’s bonds are handing investors losses that are more double those from any other emerging market as a worsening in the country’s economy coincides with funds shying away from riskier assets.
The local-currency notes have fallen 5 percent in the past month, the most among 31 developing nations, according to Bloomberg indexes. The 2.4 percent decline in Turkish securities is the next-worst performance. The yield on Indonesia’s 10-year bonds rose four basis points, or 0.04 percentage point, to a five-month high of 8.26 percent as of 4:28 p.m. in Jakarta on Tuesday, Inter Dealer Market Association prices show.
Southeast Asia’s largest economy grew at the slowest pace since 2009 last quarter, inflation accelerated for a second month in April and the rupiah has lost 2.1 percent in the past month. That’s adding to Indonesia’s vulnerability as the prospect of the Federal Reserve raising interest rates, slowing growth in China and Greece’s debt crisis deter risk-taking.
“It looks like it’s going to get uglier before it gets better in the context of Indonesia,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. “I see risks at some stage between now and the first Fed rate hike that we see a 2 percent to 3 percent dump of foreign holdings,” he said, adding that the 10-year yield could climb as high as 9 percent this year.
International investors pulled 3.33 trillion rupiah ($252 million) from local-currency sovereign notes in the three days through Friday, the latest available finance ministry data shows. They still hold 38 percent of the securities, down from a record 40 percent in January. Rupiah debt returned 5.5 percent in the three months through March, a Bloomberg index shows.
“Indonesia had the best-performing local-currency bonds in the first quarter of this year on the back of strong inflows to emerging markets and lower inflation expectations,” said Ezra Nazula, the head of fixed income at PT Manulife Aset Manajemen Indonesia in Jakarta. “So it was natural for profit-takers to unwind positions. But it was exacerbated by the volatile currency and the weak global sentiment in the last month.”