Indonesian Bonds Have Best Weekly Gain in Two Months on Inflows

Indonesia’s bonds advanced this week, lowering the eight-year yield by the most in more than two months, after foreign funds boosted holdings on optimism the local currency has stabilized.

Overseas investors added 940 billion rupiah ($96 million) to their ownership of local government debt last week, data from the finance ministry show. The rupiah’s one-month implied volatility, a measure of expected moves in exchange rates used to price options, held at the lowest level since Jan. 9. Indonesian markets were closed for a holiday yesterday.

The yield on the 11 percent government bonds due November 2020 dropped nine basis points, or 0.09 percentage point, this week to 5.17 percent as of 3:23 p.m. in Jakarta, the biggest drop since the five days ended Nov. 16, according to prices from the Inter Dealer Market Association. It was steady today.

“Shorter-term bonds have more room to rally as the yields remain attractive,” said Suriyanto Chang, head of treasury at PT Bank QNB Kesawan in Jakarta. “Confidence has returned after seeing the rupiah sustain near current levels as authorities intently guard its movements.”

The rupiah’s one-month non-deliverable forwards declined 0.4 percent from Jan. 23 to 9,795 per dollar, data compiled by Bloomberg show. That’s 1.2 percent cheaper than the spot rate, which dropped 0.4 percent to 9,675, prices from local banks compiled by Bloomberg show.

A daily fixing used to settle the derivative contracts was set at 9,766 today by the Association of Banks in Singapore. The non-deliverable forwards gained 0.5 percent this week while the spot rate weakened 0.5 percent.

One-month implied volatility in the rupiah was unchanged at 6.25 percent today and 50 basis points lower than a week ago.

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