Indonesian 10-Year Yield Rises to Highest Since March on Deficit

Indonesia’s bonds fell, pushing the 10-year yield to a three-month high, on speculation the prospect of increased government debt sales will prompt investors to seek higher returns on existing notes.

Sovereign borrowings are set to rise after the nation raised its budget-deficit target for the year. Lawmakers approved a revised fiscal shortfall of 2.4 percent of gross domestic product, compared with 1.69 percent previously, Ahmadi Noor Supit, chairman of the parliament’s budget commission, said on June 18. The Finance Ministry plans to auction 8 trillion rupiah ($667 million) of securities tomorrow, after an Islamic bond offering last week fell short of its goal as the government rejected bids for higher yields.

The yield on the nation’s 8.375 percent bonds due March 2024 rose three basis points, or 0.03 percentage point, to 8.16 percent, according to the Inter Dealer Market Association. That’s the highest since March 26. The rupiah fell 0.2 percent to 11,990 per dollar, prices from local banks show. It lost 2.6 percent this month, the most among 24 emerging-market currencies tracked by Bloomberg.

“The higher financing need gives investors more sway to ask for better yields, while failed sukuk sales are a concern as they would add to the supply of conventional bonds,” said Dini Agmivia Anggraeni, a fixed-income analyst at PT Maybank Kim Eng Securities in Jakarta. “Rupiah weakness is also a concern.”

In the offshore market, one-month non-deliverable rupiah forwards declined 0.4 percent to 12,029 per dollar, 0.3 percent weaker than the onshore rate, data compiled by Bloomberg show.

One-month implied volatility, a measure of expected swings in the exchange rate used to price options, was little changed at 10 percent. Bank Indonesia set a fixing used to settle the rupiah forwards at 11,971 per dollar, compared with 11,967 on June 20.

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