Credit-default swap protection on Indonesian sovereign debt widened significantly last week because of concern over rising costs driven by fuel price increases. Worries over the economic impact triggered a selloff in the cash bond market and also resulted in the rupiah falling to its lowest levels against the greenback in four years.
"It's been a volatile week," said a credit head at a European house. Five-year CDS on the sovereign jumped from a mid-market of 255 basis points the week prior, to as wide as 330 bps before settling down around a mid of 305 bps late last week. "There's been a lot of action on the cash-side--investors have been offloading their holdings," the credit head noted, adding default-swap protection has jumped out as a result.
Default-swap trading also shot up as some end-users looked to buy protection. Trading volumes picked up to around USD80-100 last week in the illiquid name, which typically trades a quarter of that amount in a week.
Indonesian sovereign credit is rated B2 by Moody's Investors Service and B plus by Standard & Poor's.
