Market Analysis 2010

Bond Market

RI bonds to return 30% rupiah to gain : ING

Indonesia’s local-currency bond and the rupiah may advance in 2009 as investors seek higher yield because of increasing risk appetite, according to ING Groep NV.

The yield on the government’s 10-years bond will fall 2.9 percentage point to 9.25 percent by Dec.31 as Bank Indonesia lowers the benchmark interest rate by three quarter of a point, Tim Condon, Singapore based head of Asia research at the largest Dutch Financial Services company, said in an interview.

‘Globally, we’ll be seeing economies in recovery,” Condon said. ‘At that point, the intense risk aversion that has characterized the last quarter and beginning of this year will dissipate and people will be looking more for returns and Indonesia will be an attractive destination.”

The bonds would give investors a return of 30 percent in 2009 should Condon’s yield forecast prove accurate, according to data compiled by Bloomberg, HSBC Holding Plc’s  index of Indonesian local currency debt shows the securities have handed investors a profit in six of the past seven years, with the best return of 29,5 percent in 2006, and 59 percent in 2002. Indonesia’s 9 percent 10-years bond maturing in September 2018 yielded 12.16 percent, according to midday prices at the internal dealer market association.

The central bank cut it benchmark interest rate for a second month in January, to 8.75 percent, to help revive economic growth. BI will reduce the policy rate to 8 percent by year-end, Condon said.

Indonesia’s rupaiah will also strengthen as growth in southeast Asia’s largest economy beats some other countries in the region, according to Condon.

The rupiah will advance 16 percent to 9,500 per dollar by the end of the fourth quarter, he said, more bullish than the median estimate of 10,940 among 20 finance firms surveyed by Bloomberg news. The currency traded at 11,106 as of 12:36 p.m. in Jakarta.   

Lilian Karanungan, Bloomberg-Singapore.