The improvement in the US economy has an impact on increasing US Treasury Yields

3 May 2021 Written by: Redaksi OCBC NISP

The US economy, as predicted, showed a very significant increase.

Visible economic growth from US economic data, especially inflation and US employment data. Last week's US jobless claims data appears to be better than the previous level of 566K, then down to the 553K level. In addition, US core inflation for Q1 2021 surged significantly to the level of 2.3% International Monetary Fund or IMF revised up the US economic growth for 2021 from the previous level of 4.3% to 6.4%. The estimated figure for economic growth at 6.4% is the highest projection since 1984.

This condition raises concerns for market players because the Fed can raise the benchmark interest rate faster, which will increase the yield on the US Treasury, which is currently at the level of 1.64% to 1.83% (source: Bloomberg estimates). In addition, the strengthening of the USD against other major currencies is estimated to continue.

Investement Strategy:

The significant improvement in the US economy will increase market players' speculation that the Fed will raise its benchmark interest rate faster. If this happens, the strengthening of the USD will continue as the yield on US Treasury bonds increases so that there will be a pressure that will harm the global bond market and Indonesian bonds. However, it will benefit Indonesia's stock market in the medium and long term. The current weaknesses will be good for market players to take advantage of to accumulate gradually or the average decline in the domestic stock market.

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