Indonesia's Bonds Poised for First Quarterly Outflow Since 2012

  • Rupiah drops 9% Since June in Asia's second-worst performance
  • Forecasts for slower inflation may boost appeal of bonds

Foreign funds pulled money from Indonesian bonds this quarter for the first time since 2012 as a weakening rupiah and slowing economic growth made the notes the worst emerging-market performers.

Overseas investors sold a net 9.1 trillion rupiah ($621 million) of local-currency debt this quarter through Sept. 25, set for the first outflow since the three months ended June 2012, the latest Finance Ministry data show. Rupiah-denominated sovereign bonds have handed investors a 6.1 percent loss in three months, the most among developing nations, according to Bloomberg indexes.

The rupiah has weakened 9 percent this quarter, the worst performance in Asia after Malaysia’s ringgit. Indonesia’s economy is growing at the slowest pace since 2009 as the government struggles to fast-track planned infrastructure projects. Inflation is forecast to slow in the fourth quarter as the impact of a fuel-price increase late last year wears off, which will boost real yields.

Yields Attractive

“The rate differentials that Indonesia offers are attractive, but the main concerns for investors are the rupiah’s stability and growth,” said Leo Rinaldy, an economist at PT Mandiri Sekuritas in Jakarta. “We don’t expect prolonged outflows as long as we see infrastructure spending realized and policies to support investment, which would result in better growth.”

The yield on the government bonds due September 2026 surged 1.33 percentage points this quarter to close at 9.66 percent, according to the Inter Dealer Market Association. The rate fell 15 basis points on Wednesday after reaching 9.81 percent on Tuesday, the highest since February 2010. The debt offers the highest yield among emerging markets in Asia, followed by 7.54 percent for India’s 10-year notes.

Inflation probably slowed to 7 percent in September, from 7.18 percent in August, according to a Bloomberg survey before the data due Thursday. Consumer-price gains will ease to 6.5 percent by year-end, a separate Bloomberg survey shows.

The rupiah rose 0.2 percent on Wednesday to 14,651 a dollar after falling to 14,736 on Tuesday, the weakest level since July 1998.

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