Higher oil price has triggered UST yield to jump. Yields on US government bond increased 5-10 bps along the curve.
US 10-year benchmark rate nudged up 8 bps to 1.86% on Tuesday trading (03/08/22).
The possibility of US banning oil import from Russia has added concerns that inflationary pressure to be elevated.
Banning oil imports from Russia means US annual oil supply will be cut around 8%.
Now Brent crude future price is hovering around USD130/barrel, marking the highest level in the last decade.
Wall Street experienced a highly volatile trade last night before finally weakened. DJI dropped 0.56%; S&P 500 erased 0.72% and Nasdaq Composite fell 0.28%.
Majority of sovereign bond also saw an increase in its benchmark 10-year yield yesterday.
Fitch on Tuesday downgraded Russia's sovereign rating by six notches further into the junk territory to 'C' from 'B', saying a default is imminent as sanctions and trade restrictions have undermined its willingness to service debt.
On March 16, Russia is due to pay USD107mn in coupons across two bonds, though it has a 30-day grace period to make the payments.
Domestic Market Update
Following the recent worsening in global sentiment, majority of domestic government bond prices recorded a decline.
The benchmark 5-year Indo GB yield rose 3 bps to 5.58% and its 10-year Indo GB yield jumped 5 bps to 6.80% on Tuesday (03/08/22).
Yields on IDR denominated government bond has consistently increased since early Mar-22.
The IDR value strengthened against USD to the level of IDR14,396/USD yesterday (vs IDR14,415/USD previously).
Risk premium which is reflected by the 5-year Indo CDS edged 2 bps lower and now stood at 124.35 bps.
Government issued IDR6.2tn sharia securities on yesterday’s auction lower than indicative target set at IDR9tn.
The incoming bids value amounted to IDR15.3tn, significantly lower than in previous auction of IDR33.51tn.
Lower incoming bids indicated market concerns over the recent development of Russia-Ukraine war.
Government also announced to conduct GSS today for 5 sharia securities.
Market Projection
Given the recent development on global and domestic market, we expect the 10 year Indo GB yield to move within a range of 6.75-6.85% for today.
Attractive Indo GB series to be traded today : FR0090, FR0064, FR0078, FR0087 and FR0091.
