Indonesia Bonds Advance as BlackRock Sees Potential for Rate Cut

  • Inflation has slowed for four straight months through November
  • Nation drew $8.1 billion of bids at sovereign dollar debt sale

Indonesian bonds rose, pushing the 10-year yield down the most in four weeks, on speculation the central bank will have room to cut interest rates as inflation cools.

Consumer-price gains eased to 4.89 percent in November, from 6.25 percent in October, figures showed on Tuesday and the government predicted last week inflation could slow to 3 percent by the end of the year. BlackRock Inc., the world’s largest money manager, sees potential for Indonesia to reduce borrowing costs, while HSBC Holdings Plc has recommended clients invest in the nation’s 10-year bonds because of the price-gain outlook.

The yield on the notes due September 2026 dropped nine basis points, the most since Nov. 3, to 8.45 percent as of 5:07 p.m. in Jakarta, according to the Inter Dealer Market Association. The two-year yield fell seven basis points to 8.20 percent. Indonesian local-currency bonds have gained 2.7 percent in the past month, the best performance in Asia, Bloomberg indexes show.

“Indonesia is a case in point where if the Fed lift-off comes alongside a dovish hike, we actually see the possibility of a monetary easing cycle," said Neeraj Seth, head of Asian credit in Singapore at BlackRock, which oversees $4.5 trillion. Indonesia has come a long way in terms of the “macroeconomic adjustment that was required" to exit from the ‘fragile five,’ he said.

Morgan Stanley said in 2013 that Indonesia was one of the five major emerging markets with the most vulnerable currencies along with Brazil, India, Turkey and South Africa. Demand for Indonesian bonds was highlighted by the government drawing $8.1 billion of bids at an auction of $3.5 billion of sovereign dollar debt on Tuesday.

The rupiah fell 0.1 percent to 13,797 a dollar, prices from local banks show. The currency has lost 10 percent this year, the worst performance in Asia after Malaysia’s ringgit. BlackRock sees the rupiah stabilizing as the nation’s current-account deficit has narrowed, Seth said at a briefing in Singapore.