Indonesian bond yields jump

Indonesian bond yields rose to their highest in over a month on Tuesday, as faster-than-expected second-quarter economic growth raised expectations that the central bank's easing cycle may be over, traders said. "There has been a significant rally in the last six months, so some parts of the market are taking profit," a Jakarta-based trader said.
"There are some worries that the Bank Indonesia is coming to the end of its rate cutting cycle." The central bank cut its key rate by 25 basis points to a record low of 6.50 percent at its last meeting on August 5 and left analysts divided over the prospects of more easing, predicting more benign inflation ahead, but signalling vigilance about possible build up of price pressures in 2010.
But Monday's data that showed the economy grew at an annual rate of 4 percent in the second quarter, beating analysts' forecasts, seemed to play into the hands of those who expect no more rate cuts. "With these latest figures in place, we believe that the central bank is unlikely to implement another rate cut when it meets next month," said BNP Paribas analyst Chan Kok Peng in a note.
By late afternoon, the yield on the benchmark five-year bond rose 13 bps to 9.66 percent, a trader said, making it the highest since July 1, 2009, according to Reuters data. In the Philippines, peso bond yields rose on expectations the government could source more debt from the local market and that the central bank could change its easing bias to a neutral one at its meeting next week.
Although Tuesday's trading volumes were low, traders said there was some repositioning in the bond market ahead of the August 20 meeting of the Bangko Sentral ng Pilipinas (BSP), the Philippine central bank. The central bank has cut the key overnight borrowing rate by 2 percentage points since December last year to 4 percent and is now seen pausing at next week's meeting. Although inflation fell to a 22 year low last week, the central bank said its current monetary policy was appropriate and it was closely tracking any build up in pricing pressure.
The yield on the 3 year benchmark bond rose by 2 basis points (bps) to 5.095 percent. Trading volume was low at 4.67 billion peso, down from Monday's 6.5 billion. Yields were also under upward pressure after media reported comments from National Treasurer Roberto Tan who said the government may source its remaining borrowing requirements locally, ruling out any further visits to global markets.