Indonesian Bonds Rally as Yield at 16-Month High Attracts Buyers

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Indonesia’s government bonds completed their biggest weekly gain in four months as the highest 10-year yield in more than a year attracted buyers.

The yield reached 8.81 percent on June 12, the highest since February 2014, luring investors as they sought emerging-market assets following the Federal Reserve’s pledge to tighten policy gradually. The Fed lowered its projections for longer-term U.S. interest rates this week, while signaling it would start raising them this year. Bank Indonesia kept its benchmark rate unchanged at 7.5 percent on Thursday, saying it is in line with its inflation target.

Sovereign notes due September 2025 yielded 8.60 percent as of 4 p.m. in Jakarta, down 21 basis points from June 12 and five basis points from Thursday, Inter Dealer Market Association prices show. The rupiah ended a four-week drop, closing little changed at 13,333 a dollar, prices from local banks show.

“The Fed saying it’s not in any hurry to raise rates was the push the market needed to buy,” said I Made Adi Saputra, a Jakarta-based fixed-income analyst at PT BNI Securities, a unit of the nation’s fourth-largest lender. “A more stable rupiah eased investor concerns, but we don’t expect yields to fall much further from here.”

Saputra said the 10-year yield could reach 8.4 percent by the year-end should the Fed decide against raising interest rates in 2015.

Bank Indonesia isn’t in a position to use interest rates to support economic growth as lowering borrowing costs would hurt the currency, Senior Deputy Governor Mirza Adityaswara said Wednesday.

One-month non-deliverable forwards in the rupiah advanced 0.4 percent from June 12 to 13,389 a dollar, data compiled by Bloomberg show. The contracts and the spot rate fell 0.2 percent on Friday.