Indonesian Bond Yields Rise to Highest Levels Since Early 2011

  • Rupiah weaknesss is swelling foreign-debt servicing costs
  • Government said to announce stimulus package on Wednesday

Indonesian bonds fell, pushing the 10-year yield to the highest level since 2011, as the weakening rupiah stoked concern the country’s economic outlook is deteriorating.

A 13 percent drop in the currency this year is swelling the debt-servicing costs of the government and companies, which owe a record $304 billion of foreign debt, according to central bank data. The economy is growing at the slowest pace since 2009, damping domestic demand, while falling commodity prices are a drag on export revenue. Coordinating Minister for Economic Affairs Darmin Nasution told reporters in Jakarta on Tuesday that a package of stimulus measures would be announced on Wednesday.

The yield on the bonds due September 2026 rose one basis point to 9.17 percent as of 4 p.m. in Jakarta, according to Inter Dealer Market Association prices. It increased to 9.20 percent earlier, the highest since January 2011. The yield has risen 40 basis points in a six-day streak.

“The rupiah is weakening and investors are very worried about the economy,” said Juniman, chief economist at PT Bank Internasional Indonesia in Jakarta. “So there’s pressure on the bond market,” he said, adding that his year-end forecast for the 10-year bond yield of 9.6 percent could be reached this quarter.

The rupiah fell 0.3 percent to 14,281 a dollar and touched a 17-year low of 14,295 earlier, according to prices from local banks. Its drop in 2015 is Asia’s worst performance after Malaysia’s ringgit and comes after it lost 27 percent over the previous three years. The Jakarta Composite Index of shares rose 0.4 percent following a 2.6 percent decline on Monday.

As sovereign bond yields have risen, foreign funds have pumped more money into the notes. They bought a net 3.12 trillion rupiah ($218 million) of the securities in the four days through Friday, according to the latest data from the Finance Ministry.

“Our bond market is preferred by foreign investors because of the high yields,” said Juniman, who like many Indonesians goes by only one name. A yield of 9.6 percent would be an attractive entry level for the 10-year notes, he said.

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