Indonesia’s Bonds Advance as Fund Inflows Quicken; Rupiah Drops

Indonesia’s bonds rose, pushing the two-year yield to the lowest in a year, as official data showed foreign investors quickened purchases of the nation’s debt. Rupiah forwards declined for a fourth day.

Global funds added 3.7 trillion rupiah ($382 million) to holdings of local sovereign debt this month through Feb. 15, set to be the biggest monthly increase since November, figures from the finance ministry show. Indonesian two-year notes pay 407 basis points, or 4.07 percentage points, more than U.S. Treasuries, according to data compiled by Bloomberg.

“Foreigners have been buying quite aggressively so yields are declining across the board,” said Nurul Eti Nurbaeti, Jakarta-based head of treasury research at PT Bank Negara Indonesia. “There is still room for the rally to continue, with short-term notes benefiting from the yield differential.”

The yield on Indonesia’s 11 percent securities due October 2014 dropped one basis point to 4.33 percent as of 3:12 p.m. in Jakarta, the lowest level since February 2012, according to prices from the Inter Dealer Market Association.

The government plans to raise 1.5 trillion rupiah selling Islamic debt due in five years to 24 years today, according to a statement on the finance ministry’s website.

The rupiah’s one-month non-deliverable forwards fell 0.3 percent to 9,735 per dollar, the weakest level since Feb. 7, data compiled by Bloomberg show. The contracts traded at a 0.2 percent discount to the spot rate, which dropped 0.3 percent to 9,711, according to prices from local banks. Non-deliverable forwards are settled in dollars.

A daily fixing used to settle the derivative contracts was set at 9,709 today by the Association of Banks in Singapore, the highest level since Feb. 7, compared with 9,676 yesterday.

One-month implied volatility for the rupiah, which measures expected moves in exchange rates used to price options, fell 11 basis points to 5.87 percent, the lowest level this month.

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