Indonesian Bonds Complete Longest Losing Streak Since April 2008

Indonesian bonds declined for a ninth week, the longest losing streak in five years, after the central bank boosted its benchmark rate by the most since 2005 to slow inflation. The rupiah fell to the lowest since 2009.

Bank Indonesia raised its reference rate by 50 basis points to 6.50 percent yesterday, the most since December 2005. The decision was predicted by only three out of 19 economists surveyed by Bloomberg. Fourteen forecast a 25 basis point increase while two expected no change. The monetary authority sees the pace of price gains approaching the upper end of its 7.2 percent to 7.8 percent target range for 2013, Governor Agus Martowardojo said in Jakarta yesterday.

The yield on the government’s 5.625 percent notes due May 2023 surged 67 basis points this week to 8.07 percent as of 3:39 p.m. in Jakarta, the highest level since March 2011 and the biggest jump since September 2011, prices from the Inter Dealer Market Association show. It rose 17 basis points today, completing a ninth consecutive weekly climb, the longest run of increases since April 2008. Global funds pulled 18.2 trillion rupiah ($1.8 billion) from local sovereign debt holdings since May 22, when the Federal Reserve signaled plans to reduce its monthly debt purchases.

“Inflation should peak in July, limiting room for much higher yields as Bank Indonesia’s tightening cycle should be near its end,” said Handy Yunianto, head of fixed-income research in Jakarta at PT Mandiri Sekuritas, a unit of nation’s largest bank by assets. “In addition to inflation, the Fed tapering outlook is causing portfolio rebalancing in emerging markets.”

Consumer prices in Indonesia gained 5.9 percent last month, from 5.47 percent in May, official data show.

Rupiah Weakens

The rupiah dropped 0.5 percent this week to 9,993 per dollar, after reaching 9,995 earlier, the lowest level since September 2009, prices from local banks compiled by Bloomberg show. The currency will gain to about 9,800 by year-end, said Yunianto. One-month non-deliverable forwards rose 1.5 percent to 10,163, trading at a 1.7 percent discount to the spot rate.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 1.53 percentage points to 10.80 percent, according to data compiled by Bloomberg.

Indonesia sold $1 billion of 10-year dollar-denominated notes at 5.45 percent, Robert Pakpahan, director general at the debt management office, said yesterday. That’s the highest yield offered for that maturity since the 6 percent paid at a January 2010 issue.

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