Indonesian 10-Year Bonds Rally as Record Debt Inflows Extended

Indonesia’s bonds gained, pushing the 10-year yield to a two-week low, after foreign funds boosted holdings this month, adding to last quarter’s record inflows.

The yield on the 8.375 percent notes due March 2024 fell five basis points, or 0.05 percentage point, to 7.88 percent as of 4:16 p.m. in Jakarta, according to the Inter Dealer Market Association. That’s the lowest level since April 14. The rate has fallen 22 basis points in the past three days, after reaching a one-month high of 8.09 percent on April 23.

Global funds raised ownership of local-currency sovereign securities by 12.2 trillion rupiah ($1.1 billion) this month to a record 372.9 trillion rupiah on April 22, the latest finance ministry data show. Joko Widodo, the presidential frontrunner, hasn’t announced a running mate for a July 9 election after narrowing his choice to two or three people last week. The Federal Reserve will meet on May 1, when it may further cut stimulus that has spurred fund flows to emerging markets.

“Investors returned to collect the bonds at better prices, with the rupiah at more attractive levels,” said I Made Adi Saputra, a fixed-income analyst at PT BNI Securities in Jakarta. “Further gains will be limited as there are many uncertainties ahead, both domestic and external.”

The rupiah weakened 0.2 percent to 11,587 per dollar, prices from local banks show. The currency slid 1.3 percent last week in the biggest drop since December.

Rating Affirmed

Standard & Poor’s, the only one of the three top rating companies to place the nation’s bonds at junk level, affirmed its stance today. “We may raise the ratings if the next government’s policies, such as subsidy reform, would reduce Indonesia’s fiscal vulnerabilities, improve its balance sheet, reduce the external debt burden, or boost economic growth prospects,” S&P said in the statement.

International investors pumped 37.1 trillion rupiah into local bonds in the three months ended March 31, the most in official data going back to 2002.

In the offshore market, one-month non-deliverable rupiah forwards declined 0.1 percent to 11,630 per dollar, trading 0.4 percent weaker than the onshore spot rate, according to data compiled by Bloomberg. Bank Indonesia set a fixing used to settle the forwards at 11,568 today, compared with 11,601 on April 25.

One-month implied volatility, a measure of expected swings in the currency used to price options, fell 10 basis points to 10.98 percent.

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