T-Bond Prices Estimated to Have Limited Increase

photo downloaded from: http://www.ipsfn.com/images/Dollar.jpg

as published in Bisnis Indonesia daily newspaper

Monday, 14/12/2009 00:00 WIB

T-Bond Prices Estimated to Have Limited Increase

JAKARTA: Medium-term T-bond prices are estimated to increase limitedly in the wake of profit-taking actions by investors.

The higher prices are predicted to lower T-bond yields by 10 basis points (bps).

T-bond yield and price are inversely proportional, with 100 bps being equal with 1%.

A bond analyst at PT Trimegah Securities Tbk Ariawan viewed T-bond prices were still potential to have a limited increase this week, despite the fact that trading volume would be increasingly shrinking approaching year-end holiday season.

"There are negative sentiments from Spain's and Greece's lower rating outlook, but announcement on the US financial data can affect the T-bond market," he said yesterday.

He said medium-term T-bond was a series whose price might increase this week, while the timing for long-term investors to enter long-term T-bonds had already been appropriate.

Ariawan argued foreign investors saw Indonesia's T-bond market was at its height, reflected by a decline in Indonesia's ten-year US credit default swap (CDS).

CDS price sank from its three-month high of 279.47 on November 27 to 230.93 on November 11. The highest level of the CDS was 1,295, recorded on October 24, 2008.

CDS is a bond market derivative contract product which serves as an insurance cost for bond default. Lower CDS price shows market players are still interested in traded bond.

Negative sentiment

An economist at PT Bank Danamon Indonesia Tbk Helmi Arman viewed the surging Indonesia's CDS last month was attributable to temporary negative sentiments triggered by Dubai World bond default. Dubai World is one of Union Arab Emirate-owned (UAE) enterprises.

He explained the Dubai World default case previously was assumed to lower the ratings of other developing countries worldwide and stall post-crisis economic recovery.

Ariawan said the lower CDS reflected that foreign investors' interest in Indonesian bonds was far from declining.

He argued the lower Indonesia's T-bond yields in the past few weeks leading to a slimmer margin with US bond yields. (Bisnis/21)