Indonesia 10-Year Bond Yield Drops to Lowest Since October 2013

Indonesia’s bonds advanced and the 10-year yield fell to the lowest level since October 2013 after global investors added to their holdings amid signs of growing political stability.

All parties in parliament agreed to stick with direct local elections that paved the way for President Joko Widodo, known as Jokowi, to rise from mayor to governor of Jakarta to head of state, Deputy Speaker Agus Hermanto said yesterday. Outgoing lawmakers had voted to scrap the system in September. Overseas funds bought a net 10.5 trillion rupiah ($841 million) of local-currency debt so far this month, Finance Ministry data show.

“Bond inflows have been quite significant,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The reversal of the direct local election law shows Jokowi gaining a better political foothold, so that makes investors more comfortable with buying Indonesian assets.”

The yield on government notes due September 2025 dropped two basis points, or 0.02 percentage point, to 7.43 percent as of 2:47 p.m. in Jakarta, according to the Inter Dealer Market Association. The rupiah climbed 0.8 percent to 12,489 a dollar, the biggest gain since Dec. 18, prices from local banks show.

Since taking power in October, Jokowi has eliminated gasoline subsidies and freed up funds to spend on building toll roads, ports and power plants to support his target of achieving 5.8 percent economic growth this year, compared with the five-year low of 5.1 percent estimated for 2014.

One-month non-deliverable rupiah forwards rose 0.7 percent to 12,539 a dollar, data compiled by Bloomberg show. Bank Indonesia set a fixing used to settle the contracts at 12,557, from 12,659 yesterday.

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