The Thai baht slipped for a second session on Friday to its lowest in two weeks, leading declines along with the Philippine peso as pressures from an increasingly hawkish United States Federal Reserve weighed on risk-sensitive Asian markets.
The Indonesian rupiah snapped a four-day losing streak to appreciate 0.2%. It lost 1% since the start of the new year, dampened by chances of faster US rate hikes, a firm dollar and the government's decision to ban coal exports in January, and was set to end the week 0.7% weaker.
The Indonesian 10-year benchmark yield scaled a near three-week high of 6.445% after slumping to an over one-month low earlier in the week, as US Treasury yields rose on the possibility of early Fed monetary tightening.
"Indonesian bonds are buffeted by external factors such as rising US yields and a more hawkish Fed, which may drive some bonds outflows from Indonesia in the short term and a bump up in yields," said Wei-Liang Chang, FX and Credit strategist at DBS Bank.
"Over the medium term, believe Indonesia's real yields are still attractive to foreign investors given the country's modest inflation."
DBS analysts Duncan Tan and Eugene Leow expect Indonesian bonds to "outperform" against other Asian bonds, while Barclays analysts see the 10-year yield rising to between 6.75% and 7.0% by the end of the year.
Barclays sees the 10-year yield ending higher in 2022 as demand from Bank Indonesia and foreign investors remains uncertain, with foreign purchases unlikely to be "sizeable" as the Fed tapers and moves towards rate hikes.
Elsewhere in Southeast Asia, the Philippine peso weakened marginally on concerns over the Fed's hawkish tilt, and was on track to end the week about half a percent in the red, its third in a row.
The Malaysian ringgit firmed 0.2%, but was set to soften 1% over the week to become the top loser in the region after depreciating for four consecutive days. The Thai baht , which began the week on a positive note, was set to lose 0.5% over the week.
In equities markets, Singapore (.STI), Indonesia (.JKSE), Thailand (.SETI) and South Korea (.KS11) advanced between 0.5% and 1.5% on Friday, while the Philippine bourse (.PSI) shed as much as 0.8%.