Indonesia Five-Year Bond Yield Drops Most Since 2011 on ECB Bets

Indonesia’s government bonds rose, pushing the five-year yield down the most since April 2011, on speculation emerging-market inflows will increase should the European Central Bank boost stimulus.

The ECB will decide Thursday on whether to embark on 50 billion euros ($58 billion) a month of asset purchases until the end of 2016, according to two central-bank officials. Global funds have bought 16.3 trillion rupiah ($1.3 billion) of local-currency sovereign debt so far this year, official data show. The nation’s parliament agreed this week to keep direct local elections for governors and mayors, signaling less opposition to President Joko Widodo’s legislative agenda.

“Because of quantitative easing in Europe, some offshore investors are probably switching portfolios to Indonesia,” said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas in Jakarta. “The approval of direct Indonesian elections also added to the positive sentiment.”

The yield on government notes due November 2020 fell 28 basis points, or 0.28 percentage point, to 7.14 percent in Jakarta, according to the Inter Dealer Market Association. That’s the lowest level since November 2013.

The rupiah was little changed at 12,488 a dollar, prices from local banks show. It reached 12,426 earlier, the strongest since Jan. 2.

Bond Auction

Demand for Indonesian bonds has climbed amid confidence Widodo, known as Jokowi, will enact reforms to spur growth in Southeast Asia’s largest economy. The government sold 17.3 trillion rupiah of bonds at a Jan. 20 auction, exceeding its 12 trillion rupiah target, official data show. The sale drew 54.79 trillion rupiah of bids.

Bank Indonesia has room to lower borrowing costs as inflation eases due to the decline in oil prices, Sri Adiningsih, a member of an advisory board to Jokowi, said Wednesday. The central bank kept its benchmark interest rate unchanged for a second straight month on Jan. 15.

One-month non-deliverable rupiah forwards rose 0.2 percent to 12,520 a dollar, data compiled by Bloomberg show. Bank Indonesia set a fixing used to settle the contracts at 12,451 compared with 12,557 on Wednesday.

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