Indonesian Sovereign Bonds Gain as Fed Rate Rise Brings Clarity

  • 10-year yield declines by the most in more than two months
  • All but one of 22 analysts see Bank Indonesia holding key rate

Indonesian bonds advanced, pushing the 10-year yield down the most in two months, after the Federal Reserve rate increase removed uncertainty and boosted demand for some emerging-market assets.

The yield on the 10-year notes fell 17 basis points, the most since Oct. 9, to 8.76 percent as of 3:20 p.m. in Jakarta, according to the Inter Dealer Market Association. The yield increased 54 basis points in the three days through Monday as foreign funds pulled 3.66 trillion rupiah ($261 million) from domestic sovereign notes, according to Finance Ministry figures.

The U.S. central bank raised its benchmark rate by 25 basis points on Wednesday in a move that had been well telegraphed, and Chair Janet Yellen promised afterward that the pace of tightening next year would be gradual. The reaction in Asian debt markets was largely muted, while stocks rose and currencies were mixed.

“The Fed rate hike actually removed some overhang and uncertainties for the market, as the expectation is that rate hikes in 2016 will be gradual,” said Ezra Nazula, head of fixed income at PT Manulife Aset Manajemen Indonesia in Jakarta. Indonesian yields at these levels are “attractive,” he said.

Rate Decision

Bank Indonesia will review monetary policy later on Thursday, with 21 of 22 analysts surveyed by Bloomberg forecasting the key rate will be held at 7.5 percent. One sees a 25 basis point cut. Inflation slowed to 4.89 percent in November, the first time in 13 months that it’s been within the central bank’s 3 to 5 percent target range. A rate reduction is more likely next year, said Nazula.

“They will not be hasty, but there is room for them to cut the rate looking at inflation,” he said. “Especially in the first half, as long as the currency doesn’t deteriorate.”

The rupiah strengthened 0.3 percent to 14,033 a dollar, according to prices from local banks. That pared its loss this month to 1.4 percent.

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