ASIA LOCAL BONDS-Indonesian yields fall on rate cut, election

HONG KONG, July 7 (Reuters) - Indonesian bonds gained on Tuesday, pushing yields lower, on optimism the central bank would again cut rates due to easing inflation and that President Yudhoyono will win in this week's election, traders said.

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VIEWS AND FLOWS

Foreign investors have resumed buying debt on views that President Susilo Bambang Yudhoyono will win a new mandate on Wednesday's election, assuring the market of a continuation of his pro-growth policy, traders said.

"The market is already anticipating that President Yudhoyono will be re-elected. Yudhoyono has a proven track record for good governance, reducing corruption and handling the economy well," a Jakarta-based trader said.

"Some offshore players, who went out of stocks and bonds on concerns about the election, are already back in the market."

Foreign investors hold about 15 percent of oustanding government local debt, traders said.

Most opinion polls showed that Yudhoyono is tipped to win a second, five-year term in the July 8 election.

Some traders expect the central bank to slash rates by 25 bps more by December due to slowing inflation, which fell to 3.65 percent in June, a nine-year low. [ID:nJAK484345]

At its last meeting on July 3, policymakers trimmed rates by 25 bps to a record low of 6.75 percent, bringing total reductions to 275 bps since December. [ID:nJAK517390]

By late afternoon, the five-year bond yield ID5YT=RR was down 6 bps to 9.56 percent, traders said.

Government's plan to issue about $1 billion of Samurai bonds also helped push local debt yields lower, traders said.

PHILIPPINE YIELDS FLAT

Philippine bond yields were flat as investors awaited the outcome of the central bank's meeting on Thursday, traders said.

"The market has already priced in a 25 basis point rate cut this week, so the focus will be on the central bank's statement after the meeting," a trader from Manila said.

"If the central bank signals another rate cut, then expect some buying interest to return to the market."

By late afternoon, the five-year bond yield PH5YT=RR was little changed at 6.08 percent, traders said. (Reporting by Jun Ebias; Editing by Jan Dahinten)