Indonesia 2015 Bonds Gain as Inflation Boosts Shorter Maturities

The yield on Indonesia’s two-year bonds fell by the most this year on speculation investors are favoring shorter-dated notes after inflation accelerated to a 22-month high. The rupiah was little changed.

Consumer prices rose 5.9 percent in March from a year earlier, official data showed yesterday. That compared with 5.31 percent in March and the 5.56 percent median estimate in a Bloomberg survey. The central bank has a 3.5 percent to 5.5 percent target range. The finance ministry plans to offer 1.5 trillion rupiah ($154 million) of Islamic debt at an auction today, with tenors of between six months and 24 years. Longer-dated bonds are more sensitive to consumer-price gains.

“Inflation exceeded Bank Indonesia’s annual target last month,” said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas in Jakarta. “We expect to see quite a bit of demand for the six-month bills at the auction as investors prefer shorter-term notes for safety” due to the accelerating inflation, he said.

The yield on the benchmark two-year bonds fell eight basis points to 4.35 percent as of 3:24 p.m. in Jakarta, prices from the Inter Dealer Market Association show. That was the biggest drop since Dec. 21.

Bank of America Merrill Lynch and Australia & New Zealand Banking Group Ltd. said in research notes yesterday that they expect Bank Indonesia to raise its deposit facility rate, or Fasbi, in the coming months to restrain inflation. Bank Indonesia Governor Darmin Nasution’s term ends on May 23.

Fasbi Rate

“With the change in governors, there may be a delay in making significant policy changes, but a hike in the Fasbi rate is possible in the first half,” Mandiri’s Yunianto said.

The rupiah traded at 9,739 per dollar, compared with 9,740 yesterday, prices from local banks compiled by Bloomberg show. It was at a 0.4 percent premium to the one-month non-deliverable forwards, which advanced 0.2 percent to 9,780, data compiled by Bloomberg show.

A daily fixing used to settle the derivatives was set at 9,737 today by the Association of Banks in Singapore, compared with 9,738 yesterday.

One-month implied volatility for the rupiah, a measure of expected moves in the exchange rate used to price options, rose two basis points, or 0.02 percentage point, to 6.02 percent.

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