Yields of One Month T-Bills Spiked Extending the PSEi 30’s Losing Streak; Philippine Peso at All-Time Lows!
Down by .87%, the PSEi extended its losing streak for the fourth week.
But that's hardly the main story.
Unknown to most, one-month benchmark BVAL rates spiked to a two-year high as treasury yields surged across the curve. Yields rose most at the front.
T-Bills are frequently used tools by the BSP to manage its policies. This surge extrapolates that primary dealers, institutional traders, or the BSP expect a coming rate hike.
And while surging T-Bills affect money market rates, it heightens the cost of (bridge or operational) credit financing used by corporations and the government over the short term, tightening the liquidity of the financial system.
And a liquidity crunch not only reduces the volume in the PSE but heightens the risks of liquidations. Or, some entities may opt to sell equities to raise funding to fill their funding needs.
But the main board volume in the PSE jumped by 54%, partly from the cross trades of San Miguel and Emperador shares and foreign inflows.
The other major story is the peso's plunge to a fresh all-time low, which escalates the risks of mounting price pressures in the economy.
It has also amplified the credit risks of the nation's USD debt. Doug Noland of the Credit Bubble Bulletin noted:
The most notable yield surges were in dollar-denominated EM debt. Dollar yields were up 65 bps in Turkey, 39 bps in Peru, 33 bps in Panama, 30 bps in Chile, 26 bps in Mexico, 24 bps in the Philippines and 22 bps in Brazil.
This week, the US Federal Reserve will announce changes in its official policy rates next week. Markets foresee a 75 bps hike at the minimum, which could magnify market volatility.
Finally, a violation of the flag formation in either direction should magnify momentum. The flag is a continuing pattern, and since the general trend of the PSEi 30 is down, the odds are for a breakdown.
Be careful out there.
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