US Treasury Yields Rise to The Highest Level in a Year

23 Feb 2021 Written by: Redaksi OCBC NISP

News about the increase in yields of the US Treasury (US bonds) has been widely discussed by market players, both domestic and foreign due to the significant increase since early last week.

For the record, the increase in yield indicates weakness in bond prices because yields and prices move in opposite directions. US Treasury yields for 10 years were in the range of the level of 1.2% at the start of trading last week, but this morning it is seen in the range of 1.36% - 1.37%. The sharp increase in a short period has certainly caught the attention of global investors because the US Treasury is the benchmark for global bond yields, including in Indonesia. The increase in US Treasury yield also causes an increase in yield or a decrease in bond prices in Indonesia, both in Rupiah and US dollars.

The increase in yield was due to the sale of US Treasury assets which was driven by the following factors:

  1. President Biden's plan for additional fiscal stimulus worth USD $1.9 trillion.
  2. The potential for fiscal stimulus distribution by the 46th President of the United States, Joe Biden, is one of the factors driving the increase in US Treasury yields. Massive fiscal stimulus will increase Money Supply in the United States and could weaken the USD currency. The weakening of the USD itself can push down the price of US bonds (US Treasury) and reduce the investment attractiveness of these instruments.

  3. Positive developments in terms of the spread and process of COVID-19 vaccination in the United States.
  4. The United States has just officially recorded 500 thousand deaths from the COVID-19 virus. However, the prevalence rate has fallen significantly compared to the beginning of 2021; where daily new cases reach 300 thousand per day but now it is below 100 thousand per day. The global vaccination process currently stands at 4.6 million per day, where the United States is the country with the most injections in the world per day. With this positive development, investors in the United States are increasingly releasing safe-haven assets such as the US Treasury to accumulate other investment instruments that provide more opportunities when the economy fully recovers.

Investment Strategy:

The weakening of the US bond market also indirectly caused the domestic bond market to weaken. With US Treasury yields currently in the range of 1.36% - 1.37%, investors can consider investing in Indonesian government bonds, both in IDR and in USD. Therefore, accumulating fixed income assets such as bonds nowadays provides quite a large opportunity for an investor; Considering that the current price is relatively cheaper than the beginning of 2021. The potential increase in the yield of US Treasury currently looks limited, so investment in SUN denominated in Rupiah or INDON in US Dollar is currently quite attractive.

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