Indonesian Bonds Complete Longest Winning Streak Since December

Indonesia’s two-year bonds advanced for a third straight week, the longest winning streak since December, after global funds bought the nation’s debt. Rupiah forwards fell.

Foreign ownership of the securities is rising for a sixth month, with overseas investors adding 6.3 trillion rupiah ($649 million) to their local-currency holdings in February, finance ministry data show. The economy expanded at the slowest pace in two years in the fourth quarter and the current-account deficit widened to the highest since Bloomberg began compiling the data in 1989.

“There is excessive optimism from foreign funds, so there is still a chance for yields to head lower,” said Rully Nova, a currency analyst at PT Bank Himpunan Saudara 1906 in Jakarta. “The inflows may become a concern as they don’t fully reflect the fundamentals, considering slower growth and the current-account deficit last quarter, and faster inflation ahead.”

The yield on the government’s 11 percent bonds due October 2014 lost five basis points, or 0.05 percentage point, this week to 4.31 percent, the lowest level since February 2012, closing prices from the Inter Dealer Market Association show. Benchmark two-year notes reached a record-low of 4.18 percent on Feb. 15, 2012. The yield was little changed today.

The Finance Ministry’s sale of retail sukuk ended at midday today, and allocations will be announced Feb. 25. The ministry is seeking to raise a record 15 trillion rupiah, with bids amounting to 19 trillion rupiah so far, Dahlan Siamat, Islamic financing director at the debt management office, said by telephone from Jakarta yesterday.

Forward Contracts

The rupiah’s one-month non-deliverable forwards slipped 0.4 percent this week to 9,720 per dollar as of 4:06 p.m. in Jakarta, the biggest drop since the five days ended Jan. 11, data compiled by Bloomberg show. They traded at a 0.1 percent discount to the spot rate, which weakened 0.4 percent to 9,708, prices from local banks show.

The forwards fell 0.2 percent today and the spot rate declined 0.1 percent. A daily fixing used to settle the derivative contracts was set at 9,711 today by the Association of Banks in Singapore, compared with 9,681 on Feb. 15.

One-month implied volatility for the rupiah, which measures expected moves in exchange rates used to price options, was unchanged at 6.5 percent.

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