Indonesia Crisis Watch: Tremors on the rupiah and the Indonesian Bonds

Since the Fed’s “UN-taper” surprise last September, ASEAN equity markets have been complacently moving sideways

Indonesia’s JCI has been in a lower-highs since the initial shakeout. (As a side note, bulls may want to point at the reverse head and shoulders)

But underneath the smug inertia, yields of Indonesia’s 10 year bonds have rebounded sharply during the past week, which as of this writing has reached the late September highs.

The pressure seen in Indonesia’s bonds have likewise been reflected on her currency, the rupiah, which trades slightly below the recent USD IDR highs (11,701)

While the mainstream has been partly correct in stating that Indonesia’s current account deficit has been a key source of concern…

I’d say that current account deficits funded by swelling debt (e.g. external debt) seems even a bigger concern…

That’s because the Indonesian political economy has been spending more than she has been earning and has resorted to even more borrowing and inflating as ways to go around such predicament

And financial markets appear to be getting queasy or uncomfortable with Indonesia’s ability to finance her obligations, even if her  debt levels have been comparatively low relative to her peers.

Thus all these 'questioning' of Indonesia’s creditworthiness seem as being ventilated on the currency markets, the return of Indonesia's bond vigilantes and a renewed spike in Indonesia's Credit Default Swaps (CDS).

Yet should the interim trend deteriorate further, then third chapter of downside volatility for ASEAN financial markets, since the May-June episode, may just be around the corner. 

Don't be surprised.