Indonesia 10-Year Bond Yield at November High on Subsidies Risk

Indonesia’s bonds fell, pushing the 10-year yield to the highest since November, after overseas investors sold the nation’s assets on concern a government plan to adjust fuel subsidies will quicken inflation.

Global holdings of local-currency debt fell 1.55 trillion rupiah ($159 million) to 283.3 trillion rupiah as of March 25, from a record 284.9 trillion rupiah on March 14, according to government data. Finance Minister Agus Martowardojo said last week that measures to manage fuel usage are being considered and price increases haven’t been ruled out. Inflation reached a 20-month high of 5.31 percent last month and may average 5.5 percent in 2013, according to PT Bank Danamon Indonesia.

“The longer the delay and as the uncertainty remains, the higher the chance that inflation will have picked up already, and prices tend to be sticky and not move downward,” said Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore. “It would be better to have a clearer direction of where the policy is headed.”

The yield on the 5.625 percent bonds due May 2023 climbed five basis points to 5.53 percent as of 4:10 p.m. in Jakarta, the highest level since Nov. 9, prices from the Inter Dealer Market Association show. The Finance Ministry sold 7.65 trillion rupiah of bonds in an auction today, exceeding its 7 trillion-rupiah target, according to a statement on the debt management office’s website.

Rupiah one-month non-deliverable forwards advanced 0.1 percent to 9,790 per dollar, data compiled by Bloomberg show. They reached 9,825 earlier, the weakest level since Jan. 31. The contracts traded at a 0.4 percent discount to the spot rate, which dropped 0.1 percent to 9,748, prices from local banks show.

A daily fixing used to settle the derivatives was set at 9,753 by the Association of Banks in Singapore, compared with 9,741 yesterday. One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, fell 28 basis points, or 0.28 percentage point, to 5.52 percent.

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