Indonesia 2-Year Bonds Rally a Fifth Week as Inflation Quickens

Indonesia’s two-year bonds rose for a fifth week, driving the yield to a one-year low, as investors favored shorter-maturity debt after inflation accelerated.

Consumer prices climbed 5.31 percent in February from a year earlier, the highest level since June 2011, the government reported on March 1. That was more than the 4.81 percent median estimate in a Bloomberg survey. Bank Indonesia kept interest rates unchanged for a 13th consecutive meeting yesterday, as predicted by all 21 economists in a separate survey.

“Given the recent inflation pressures, a lot of investors are shortening duration to the shorter end of the curve,” said Ezra Nazula, head of fixed income at PT Manulife Asset Management Indonesia in Jakarta. “If inflation still picks up, and the government needs to increase the overnight rate, there will definitely be some pressure on short-end bonds.”

The yield on the government’s 11 percent debt due October 2014 fell one basis point, or 0.01 percentage point, this week and today to 4.28 percent as of 3:08 p.m. in Jakarta, prices from the Inter Dealer Market Association show. That’s the lowest level since Feb. 21 last year and 10 basis points off an all-time low of 4.18 percent reached Feb. 15. 2012.

The rupiah’s one-month non-deliverable forwards strengthened 0.1 percent to 9,703 per dollar, data compiled by Bloomberg show. They traded at a 0.2 percent discount to the spot rate, which climbed 0.1 percent to 9,688, prices from local banks show. A daily fixing used to settle the rupiah derivatives was set at 9,688, from 9,699 yesterday by the Association of Banks in Singapore.

One-month implied volatility, which measures expected moves in the exchange rate used to price options, was little changed this week at 5.79 percent. The rate dropped four basis points today.

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