Indonesia 10-Year Yield Snaps Three-Day Climb on Fund Inflows

Indonesia’s bonds rose, with the 10-year yield snapping a three-day advance, after overseas investors added to holdings of the debt. Rupiah forwards were steady.

Funds based abroad increased ownership of the nation’s local-currency sovereign debt by 6.3 trillion rupiah ($649 million) this month to 279 trillion rupiah as of Feb. 20, finance ministry data show. The average yield on the notes dropped 10 basis points in February to 5.90 percent, according to HSBC Holdings Plc. That compares with rates of 4.28 percent on Philippine notes and 3.60 percent on Thai debt.

“Inflows are driven by investors chasing yields,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “It’s quite concerning as we think a 6 percent to 7 percent average yield would be more in line with fundamentals, though we don’t expect to see inflows drying up soon.”

The yield on the government’s 5.625 percent bonds due May 2023 fell one basis point, or 0.01 percentage point, to 5.27 percent as of 3:09 p.m. in Jakarta, according to prices from the Inter Dealer Market Association.

Indonesia reports data on inflation and trade later this week. Consumer prices rose 4.57 percent in January from a year earlier, following a 4.3 percent gain in December, official figures showed this month. That was more than the 4.28 percent average for 2012.

President Susilo Bambang Yudhoyono nominated Finance Minister Agus Martowardojo as his candidate to succeed Darmin Nasution as governor of the central bank when his term expires May 23, Speaker of the House Marzuki Alie said Feb. 23.

Sukuk Sale

The government sold a record 14.97 trillion rupiah of Islamic three-year bonds to individuals after an offer period ended on Feb. 22, short of its 15 trillion rupiah target, according to a statement from the debt management office today.

Rupiah one-month non-deliverable forwards were steady at 9,720 per dollar, data compiled by Bloomberg show. The contracts traded at a 0.1 percent discount to the spot rate, which held at 9,709, according to prices from local banks. A daily fixing used to settle the derivatives was set at 9,713 today from 9,711 on Feb. 22 by the Association of Banks in Singapore.

One-month implied volatility for the rupiah, which measures expected moves in the exchange rate used to price options, was unchanged at 6.50 percent for a 16th day.

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