Indonesia Two-Year Bond Yield Falls to One-Week Low on Inflows

Indonesia’s two-year government bond yield fell to the lowest in more than a week on foreign inflows amid a slide in global stock and commodities markets.

Overseas investors pumped 990 billion rupiah ($102 million) into sovereign debt in the two days through yesterday, finance ministry data show. The MSCI World Index of shares slumped the most since June yesterday and commodities sank to a nine-month low after data showed Chinese growth slowed in the first quarter. Bank Indonesia kept its reference rate at 5.75 percent for a 14th month last week and its next meeting is on May 14. Finance Minister Agus Martowardojo is set to take over as central bank governor when Darmin Nasution’s term ends May 23.

The yield on the 11 percent bonds due October 2014 dropped six basis points, or 0.06 percentage point, to 4.39 percent as of 2:28 p.m. in Jakarta, the lowest since April 4, data from the Inter Dealer Market Association show. That compares with a yield of 2.46 percent for similar-maturity Philippine notes and 2.83 percent for Thai securities.

“Investors are still seeking better yields,” said Nurul Eti Nurbaeti, Jakarta-based head of treasury research at PT Bank Negara Indonesia. “There is room for bonds to rally until the next central bank meetings, when we might see a change in monetary policy after the new governor steps in.”

The finance ministry plans to raise 1.5 trillion rupiah by selling Islamic debt with maturities of between six months and 24 years at an auction today, according to a statement on its website.

The rupiah declined 0.1 percent to 9,725 per dollar, prices from local banks compiled by Bloomberg show. It traded at a 0.3 percent premium to the one-month non-deliverable forwards, which fell 0.1 percent to 9,750, data compiled by Bloomberg show.

A daily fixing used to settle the derivatives was set at 9,725 by the Association of Banks in Singapore from 9,714 yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped one basis point to 5.94 percent.

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