Indonesia’s government bonds dropped the most in almost two years and the rupiah fell to a two-month low on concern a slump in commodity prices and higher U.S. interest rates will curb demand for local assets.
A slide in the Bloomberg Commodity Index to its weakest level since 1999 Monday damped the outlook for Indonesia, the world’s biggest palm oil grower and thermal coal exporter. Foreign funds own 38 percent of Indonesian domestic sovereign bonds, the highest proportion in Southeast Asia. Asian currencies declined ahead of the Federal Reserve’s Dec. 15-16 meeting and on speculation China will allow the yuan to drop after policy makers unveiled a new index that valued it against a broad range of currencies.
The yield on Indonesia’s 10-year bonds climbed 28 basis points to 9 percent, the biggest jump since January 2014, according to the Inter Dealer Market Association. The Jakarta Composite Index of shares lost 0.4 percent to close at its lowest level since early October.
“The Fed hike is looming,” said Leong Sook Mei, Southeast Asia head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Singapore. “It’s the commodities factor that’s driving the rupiah down.”
The rupiah retreated 0.9 percent, the most since Oct. 29, to 14,080 a dollar in Jakarta, according to prices from local banks. It dropped to 14,095 earlier, the weakest level since Oct. 7. Monday’s losses took the currency’s decline this year to 12 percent, the most in the region after Malaysia’s ringgit.
The yuan’s weakness could spur depreciation across the region, according to Bank of America Merrill Lynch. Futures contracts show a 74 percent probability of the Fed raising borrowing costs this week.
original source: http://www.bloomberg.com/news/articles/2015-12-14/rupiah-leads-losses-in-asia-as-indonesian-bonds-drop-before-fed