Indonesian bonds are expected to be the primary beneficiaries in Asia as anticipation builds for US Federal Reserve interest-rate cuts. This sentiment is sparking widespread gains throughout the region. Rupiah-denominated bonds are particularly well-positioned, boasting the highest yields in Asia, with benchmark securities offering yields near 6.5 per cent.
Bank Indonesia, with currency stability as a core objective, is uniquely positioned to capitalise on any dollar weakness. This allows the central bank to further ease monetary policy without destabilising the rupiah. Rajeev De Mello, portfolio manager at GAMA Asset Management in Geneva, notes that local-currency bonds in Asia, especially those of Indonesia, are set to gain significantly from a weaker US dollar scenario.
De Mello added that Indonesia constitutes a substantial portion of their EM local-currency bonds portfolio. A weaker US dollar is anticipated to strengthen the rupiah, subsequently pushing Indonesian yields even lower. This trend is observed as the dollar-rupiah exchange rate increasingly mirrors the performance of local 10-year yields, with the 30-day correlation between the two reaching its highest point since July of the previous year.
On Monday, Indonesian 10-year yields experienced a nine-basis-point decrease, marking the most significant decline in emerging Asia. This movement followed a decrease in similar-maturity US yields on Friday. Weaker-than-expected payrolls data increased the likelihood of a Fed rate cut in the coming month.
