Indonesian Bonds Snap Six-Day Loss as Yields Lure Local Buyers

Indonesia’s 10-year government bonds rose for the first time in seven days after the central bank and local funds bought the notes, lured by a surge in the yield to a 21-month high. Rupiah forwards advanced.

Bank Indonesia held 101.3 trillion rupiah ($10.1 billion) of sovereign notes on June 20, Deputy Governor Perry Warjiyo said last week. That compares with 22.8 trillion rupiah at the end of May, the latest finance ministry data show. Local-currency debt holdings at onshore banks rose 3.21 trillion rupiah from the end of May to 309.5 trillion rupiah on June 18, according to official figures.

“Bank Indonesia, along with local investors and banks, are starting to lend support to bonds to tap the high yields,” said Dini Anggraeni, a fixed-income analyst at PT Mandiri Sekuritas in Jakarta. “Foreign investors’ risk appetite is still fragile, so yields may still rise from here on.”

The yield on the 5.625 percent notes due May 2023 fell six basis points to 7.18 percent as of 3:39 p.m. in Jakarta, prices from the Inter Dealer Market Association show. It reached 7.24 percent yesterday, the highest level since September 2011.

Standard & Poor’s stable outlook on Indonesia’s credit rating of BB+, the highest junk level, is still valid even after the government cut fuel subsidies, Associate Director Agost Benard said in an e-mailed response to questions late yesterday. The reduction doesn’t “address the fundamental vulnerability of fiscal and external balances to fuel subsidies in a lasting manner,” the Singapore-based Benard wrote. S&P lowered its outlook to stable from positive in May, citing stalled reform momentum.

The government raised 1.59 trillion rupiah from an Islamic bond auction today, exceeding its 1.5 trillion-rupiah target for the first time since Feb. 5, according to a statement on the debt management office’s website.

Forwards Strengthen

One-month non-deliverable forwards rose 1.6 percent to 10,265 per dollar, the biggest gain since June 12, data compiled by Bloomberg show. The contracts traded at a 3.4 percent discount to the spot rate, which rose 0.1 percent to 9,920, prices from local banks show. It touched 9,958 on June 18, the weakest level since 2009.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, dropped seven basis points, or 0.07 percentage point, to 15.98 percent, according to data compiled by Bloomberg.

Indonesia’s parliament will form a committee to draft a law on redenominating the currency, Taufik Kurniawan, deputy House speaker, said in Jakarta today. The regulation is expected to be finalized before the elections next year, according to Anna Mu’awanah, a member of the panel.

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