Bank Indonesia Announces Operation Twist To Stabilise Rupiah

INDOGB yield curve runs flatter in the wake of Bank Indonesia's monetary policy review, with policymakers set to implement their version of an Operation Twist (OT) measure. The yield on 10-Year INDOGB approached the 7.00% mark before gradually recovering as the session progressed.

• The Board of Governors announced "buying/selling SBN [gov't bonds] in the secondary market to strengthen rupiah stability by increasing the attractiveness of short-term SBN portfolio investment and creating a flatter long-term SBN yield structure considering the short-term nature of inflationary pressures that are expected to return to the target corridor in the medium-long term."
• DBS expects the 5/10-Year sector to compress by 10-15bp and Indonesia/U.S. 10-Year yield spread to stay below 450bp as a result of the OT scheme. ANZ said the gap between 5- and 10-Year INDOGB yields could narrow to around 25bp by early 2023, adding that there are downside risks to their year-end 10-Year yield forecast of 7.75%.
• Foreign investors bought a net $71.1mn in Indonesian bonds on Tuesday. Note that foreign outstanding position in INDOGBs has been steadily rising since reaching a cyclical low in late July.
• The measure that effectively involves swapping short-dated bonds for longer tenors has been described as an additional rupiah stabiliser, which comes on top of Bank Indonesia's traditional "triple intervention" arsenal.