Indonesia Two-Year Bond Yield Drops to One-Week Low on Inflation

Indonesia’s two-year bonds advanced, pushing the yield to the lowest level in almost a week, after a report showed June consumer prices rose at the fastest pace in three months.

Consumer prices gained 5.9 percent from a year earlier, after climbing 5.47 percent in May, the statistics bureau said in Jakarta today. The government raised fuel costs on June 22 and the impact of the increase will be seen in the next three months with inflation peaking at 7.5 percent to 8 percent, Mika Martumpal, a currency analyst at PT Bank CIMB Niaga, said today.

“There are expectations for even faster inflation and for Bank Indonesia to raise its reference rate at its next meeting” on July 11, said Dini Anggraeni, a fixed-income analyst at PT Mandiri Sekuritas, a unit of the nation’s largest lender.

The yield on the 9.5 percent notes due June 2015 dropped four basis points, or 0.04 percentage point, to 6.5 percent, the lowest level since June 25, closing prices from the Inter Dealer Market Association showed.

“The two-year yield is too high, we see its fair value at 5 percent to 5.3 percent,” Anggraeni said.

The rupiah was little changed at 9,928 per dollar, after closing at 9,925 on June 28, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 25 basis points to 13.89 percent, data compiled by Bloomberg show.

Bank Indonesia unexpectedly raised its benchmark interest rate at last month’s meeting to damp inflation expectations. A parliamentary committee today is assessing three candidates for a vacancy on the central bank’s policy board. The committee will announce its choice for deputy governor on July 8.

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