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Thursday April 14, 06:49
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Indonesia’s bonds post largest drop ever
(by Julia Jenson)
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Indonesia’s dollar-denominated bonds posted the largest decrease in the government bond in the world to date, dropping about $18.77 per $1,000 face amount to 97.25 at 3 p.m. in Singapore, according to a Deutsche Bank report. The value of the current $10 million holding lost $187,700.
The drop occurred after the government unexpectedly lowered the yield on a $1 billion bond issue, raising concerns about the possibility of delays in developing economies’ bond sales. Indonesia priced 10-year bonds at 99.127 with a yield 7.375 percent, 3.02% above comparable Treasuries. The investors, however, believed this price to be too low considering the still persisting risk in the emerging markets. Initially, the government offered as much as 7.5% on the bonds.
``The premium is not enough,’’ said Peter Stiler, of Greylock Capital Management in New York. ``There is not only Indonesian risk, but there is Treasury risk and general emerging market spread widening risk.’’
The drop in the yield was prompted by the high demand for Indonesian bond sale. Investors placed orders for as much as $2.2 billion against the projected value of $1 billion. This number is still only half of the demand for bonds that were issued the previous time, but the Indonesian authorities decided to lower the yield in the wake of high demand.
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