Indonesia Bond Yield Falls Toward One-Year Low on Fund Inflows

Indonesia’s bonds advanced, pushing the two-year yield to the lowest level since February 2012, after foreign investors boosted holdings of the securities. Rupiah forwards were little changed.

Global funds bought 3.35 trillion rupiah ($345 million) more local-currency government debt than they sold in January, finance ministry data show. They also increased their holdings of the nation’s shares by $252 million this month through yesterday, contributing to net purchases of $840 million in 2013. The rupiah’s one-month implied volatility, which measures expected exchange-rate swings used to price options, was unchanged at 6.5 percent for a fourth day.

The yield on the government’s 11 percent bonds due May 2023 dropped three basis points, or 0.03 percentage point, to 4.36 percent as of 3:34 p.m. in Jakarta, prices from the Inter Dealer Market Association show. That’s the lowest level since Feb. 22, 2012, for the benchmark two-year yield. The Finance Ministry will offer three-year Islamic notes to individual investors with a coupon of 6 percent from tomorrow through Feb. 22, it said today. The government’s similar-maturity conventional debt yields 4.49 percent.

“Capital inflows have been very strong and we expect them to continue, especially since the rupiah has stabilized,” said Fahrudin Haris Prastowo, a Jakarta-based foreign-exchange trader at PT Bank Rakyat Indonesia. “The rupiah market onshore has normalized and it now reflects real supply and demand with less central bank intervention.”

Rupiah Quotes

The rupiah’s one-month non-deliverable forwards rose 0.05 percent to 9,715 per dollar, data compiled by Bloomberg show. They reached a three-year low of 9,985 on Jan. 10 and Jan. 11. The contracts traded at a 0.2 percent discount to the spot rate, which strengthened 0.15 percent to 9,695, prices from local banks show.

A daily fixing used to settle the derivatives was set at 9,727 today by the Association of Banks in Singapore, compared with 9,684 yesterday.

Bank Indonesia will ask local lenders to create a new benchmark as the Monetary Authority of Singapore investigates the offshore fixing to determine whether there has been any manipulation, Deputy Governor Hartadi Sarwono said today. Malaysia’s central bank told local lenders to use an onshore reference rate to settle foreign-exchange derivative contracts, a person familiar with the matter said on Jan. 29.

Indonesian lenders have been prohibited from handling non-deliverable forward contracts since June 2005, according to the monetary authority. The Association of Banks in Singapore provides offshore reference rates that are used to settle the derivative contracts involving the currencies of Singapore, Indonesia, Malaysia, Thailand and Vietnam.

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