Indonesian Bonds Complete Worst Quarter in 2 Years; Rupiah Drops

Indonesia’s bonds completed the worst three-month loss in two years on concern a government plan to cut subsidies will spur inflation. The rupiah fell for a seventh quarter in the longest losing streak since 1998.

Contracts measuring the nation’s credit risk climbed to an almost seven-month high as data showed global investors pared purchases of local debt to 160 billion rupiah ($16 million) this month through March 26, from 8.43 trillion rupiah in February. Indonesia is considering steps to limit subsidized-fuel usage while not ruling out price increases, Finance Minister Agus Martowardojo said last week. Consumer prices gained 5.31 percent in February, the most in 20 months, the latest figures show.

“There is no clear indication on what will be done to fuel subsidies, but inflation will start rising from the February high even before any real changes in policy,” said Billie Fuliangsahar, the head of treasury at PT Rabobank International Indonesia in Jakarta. “I still see current yields as too low, considering the risks.”

The yield on the 5.625 percent bonds due May 2023 climbed 39 basis points since Dec. 31 to 5.58 percent as of 4:21 p.m. in Jakarta, the most since the three months through March 2011, prices from the Inter Dealer Market Association show. The yield rose 23 basis points in March and fell two basis points today. Local financial markets are shut tomorrow for a holiday.

Five-year credit-default swaps on Indonesia’s debt rose 24 basis points this quarter to 160 basis points yesterday, the highest since Sept. 5, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Rupiah Falls

The rupiah weakened 0.8 percent this quarter to 9,718 per dollar, prices from local banks show. It traded at a 0.6 percent premium to the one-month non-deliverable forwards, which rose 0.5 percent in the same period to 9,779, data compiled by Bloomberg show. The spot rate advanced 0.1 percent while and the forward contracts were steady today.

Bank Indonesia increased dollar supply in the domestic market in January to support the rupiah and reduce the gap between its local and overseas rates, which reached the widest since September 2011 at 2.6 percent on Jan. 11, Hendar, executive director for monetary policy, said that month.

A daily fixing used to settle the derivatives was set at 9,719 by the Association of Banks in Singapore, compared with 9,730 yesterday and 9,792 on Dec. 31.

One-month implied volatility for the rupiah, a measure of expected moves in the exchange rate used to price options, climbed 32 basis points, 0.32 percentage point, this quarter to 6.07 percent. It rose 20 basis points today.

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