US Treasuries fell following the hawkish stance of the US Federal Reserve (the Fed), with yields for new issuances going up with longer terms. The benchmark 10-year yield closed 0.18% up at 3.714%, its highest level since 2007.
“Hawkish” describes a preference for managing inflation through high interest rates. Its opposite is “dovish,” which usually involves low interest rates. A dovish stand prioritizes indicators such as employment over inflation.
The rise in interest rates result in higher yields for new Treasuries. Older issuances will have lower yields, making them less attractive and thus lowering their prices.
The dollar was mixed against its Group of Ten (G10) peers. This came after a series of decisions by the Fed that pushed US yields to multi-year highs and caused stocks to fall.
The Japanese Yen also got a lot of attention after the Bank of Japan’s decisive intervention to prop up the weak Yen.
The G10 is made up of Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States, with Switzerland playing a small role. Representatives meet every year to discuss and cooperate on financial matters that affect their nations.
The Bangko Sentral ng Pilipinas (BSP) raised the key interest rate by 0.50% to reach 4.25% amid a weakening peso and rising commodity prices. Overnight deposit and lending rates were also increased to 3.75% and 4.75%, respectively.
The BSP’s action may slow the circulation of money through the system. In turn, this can help keep prices of goods and services from climbing too quickly.
The BSP also hiked its inflation rate forecast for 2022 and 2023 to 5.6% from 5.4% and 4.1% from 4%, respectively, but reduced the 2024 forecast to 3% from 3.2%.
Prices climb as inflation rises, and so high inflation rates are a cause of much concern. However, a reasonable amount of inflation can be a sign of economic growth, and so central banks do not aim to achieve zero inflation.
The news isn’t very positive, but there’s no reason to believe that things will remain this way for a long time. For now, following your strategy might be the best way to manage your portfolio.