A few days back I wrote
Indonesia’s first successful offering at the start of the year represents the initial tranche of the “record IDR 357.96 trillion (USD $29 billion)” bond sales it plans to conduct “from both international and local debt capital markets in 2014”.The question is what if the current emerging market turmoil spreads to ASEAN, will the Indonesian government be able to raise money from her targeted bond sales? If yes, at what level of rates? If not will she resort to bigger taxes or more inflation by her central bank? Yet how much increase in coupon yields in the bond markets can the Indonesia’s government afford to finance the new round of debt? How will higher rates impact the political and the economic landscape?
Here are more signs of the periphery to the core dynamic where turmoil in emerging markets seem to have spread to ASEAN.
As of this writing Indonesia’s bond market rout at the long curve appears to be accelerating:
Yields of Indonesia’s 10 year rupiah bonds soar back to the levels during the 1st week of the year prior to the government’s global bond sales
So with the yields of 20 year bonds.
Albeit yields of 5 year treasuries have risen they are far from pre bond sale level
The currency the Indonesian rupiah has also been plummeting
Indonesia’s stock market benchmark the JCI’s recent advance appears to have been foiled following the switch to a risk OFF mode. Easy come, easy go.
Indonesia’s CDS spreads have been on an uptrend while the recent EM ruckus seem to have incited a renewed spike.
Indonesia's financial markets have been signaling increasing signs of distress such that the current interest rate levels have not been enough to stanch the stream of outflows. Yet how much hike in interest rate levels can the Indonesian economy sustain before bond market rout transforms into a liquidity squeeze that eventually morphs into a crisis? And will Indonesia's problems remain isolated?
For those who think these are bullish stocks, then good luck to you.
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