Indonesia's bonds set for best week in a month on foreign buying

[JAKARTA] Indonesia's government bonds were set for the biggest weekly advance in a month as global funds bought the nation's debt on signs its currency is stabilizing.

Overseas investors added 5.02 trillion rupiah (S$530 million) to their holdings of local notes in the two weeks through March 27, paring this month's outflows to 8.2 trillion rupiah, Finance Ministry data show. A gauge of the rupiah's swings declined to the lowest since March 6 as the currency advanced for a second week. Bank Indonesia occasionally intervenes in the secondary bond market to ensure yields stay "healthy," Governor Agus Martowardojo said March 25.

"We saw some inflows return as the rupiah became more stable," said I Made Adi Saputra, a fixed-income analyst at PT BNI Securities in Jakarta. "But we think many investors are still wary of further currency weakness, so that's what they will closely watch going forward, in addition to inflation."

Notes due November 2020 rose, pushing the yield down 11 basis points, or 0.11 percentage point this week, to 7.19 per cent as of 10.09am in Jakarta, according to the Inter Dealer Market Association. That's the biggest drop since the five days ended Feb 27. The yield rose one basis point Friday.

Consumer prices likely rose 6.3 per cent to 6.4 per cent in March from a year earlier, Juda Agung, Bank Indonesia's director of monetary policy, said March 25, before data due April 1.

The rupiah advanced 0.3 per cent from March 20 to 13,073 a dollar in Jakarta, prices from local banks compiled by Bloomberg show. One-month non-deliverable forwards declined 0.3 per cent this week to 13,180, data compiled by Bloomberg show.

One-month implied volatility on the rupiah, a measure of currency movement used to price options, dropped 19 basis points this week to 12.15 per cent, data compiled by Bloomberg show.

BLOOMBERG