Indonesian 10-Year Bond Yield Rises to Highest Level Since 2010

  • Country's twin deficits make it vulnerable to external shocks
  • Rupiah poised for ninth weekly decline as Fed liftoff nears

Indonesian sovereign bonds fell this week, pushing the 10-year yield to the highest level since 2010, as the rupiah dropped amid worsening sentiment toward emerging markets.

The currency has lost 5 percent over the past month, the most in Asia after Malaysia’s ringgit, as a slowdown in China and the prospect of an interest-rate increase in the U.S. damped demand for developing-nation assets. Shortfalls in Indonesia’s current account and the government’s budget, as well as relatively high levels of foreign ownership of its debt, make the country vulnerable to external shocks.

The yield on the notes due September 2026 rose 32 basis points since Sept. 4 to 9.25 percent as of 4:09 p.m. in Jakarta, according to Inter Dealer Market Association prices. That’s the biggest weekly increase in three months and the highest level since May 2010. The yield climbed two basis points Friday.

“The sentiment globally is not constructive for emerging markets and Indonesia has twin deficits and our currency has weakened,” said Ezra Nazula, head of fixed income at PT Manulife Aset Manajemen Indonesia in Jakarta. “That’s causing some investors, especially foreign investors, to not want to enter the market even though yields are quite attractive.”

Indonesia recorded a current-account deficit of $4.5 billion in the second quarter, the 15th straight shortfall. Bond yields are at risk from increasing issuance to cover a wider-than-expected budget deficit, ING Groep NV said earlier this month.

An economic stimulus package released this week by President Joko Widodo didn’t have much impact on financial markets. Jokowi, as he is known, promised to adjust around 100 government regulations to boost industrial competitiveness and improve business certainty.

The rupiah dropped for a ninth week, falling 1.1 percent to 14,331 a dollar, according to prices from local banks. The currency was little change on Friday after dropping to a 17-year low of 14,339 on Thursday.

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