US Treasury Yields towards the latter part of the curve soared to multi-year highs, with the 10Y Treasury Yield even touching 4.35% which is a level that has not been seen since November 2007. The spike in yields was due mainly to investors\u2019 concerns about the upcoming Jackson Hole press conference wherein Fed Chairman Powell is expected to address the states of both the economy as well as monetary policy. <\/p>\n\n\n\n
When coupled with the recently released meeting minutes, the potential policy direction that Powell may outline in this gathering could prove spooky to investors as the risk that the Fed may not be done tightening will weigh heavily in the market\u2019s mind. <\/p>\n\n\n\n
Our View: <\/strong>Be wary of stocks with high USD-debt exposure. With this in mind, we would advise investors for now to steer clear of companies with heavy exposure to the USD. These would include importers such as GTCAP, URC, and MONDE, as well as names with high dollar-denominated debt (JFC, JGS, TEL, GLO).<\/p>\n\n\n\n Given the particularly steep elevation in yields, we expect this to serve as a headwind for the market back home as high returns on US Treasury bonds compete with stocks. Additionally, we note that this could also apply pressure on the Peso as low bond prices may draw funds, who are hungry for some additional yield, in the opposite direction. <\/p>\n\n\n\n While the BSP is likely to take actions to defend the local currency, the threat of the Peso making a run towards the P57.00-levels is definitely something to keep an eye on, especially as the rate differential between Fed and BSP rates remains historically low.<\/p>\n\n\n\n