Possible Fed rate hike puts local markets in the red

MANILA, Philippines - Local financial markets have been roiled by the increasing possibility of a US Federal Reserve rate hike on Tuesday.

At the stock market, the Philippine Stock Exchange index lost 0.99 percent or 70.08 points to close at 7,000.11. All sub-indices were in the red.

At the bond market, the government needed to cap the rates of the five-year Treasury bonds in offer to avoid paying excessively high rates.

The debt paper, which had a remaining life of four years and 10 months, ended fetching 3.8 percent, up from 3.352 percent in the previous auction. Only P9.732 billion of the P25-billion offer was awarded.

The peso, meanwhile, ended morning trading weaker at 47.173, down from its five-year-low close on Monday at 47.16.

"It is still highly reflective of the market trying to digest the possibility of an interest rate hike of the US Fed," a local bond trader said in a phone interview.

Astro del Castillo, managing director at First Grade Holdings Inc., said "external jitters," including the Fed raising rates, were still behind the market downturn on Tuesday.

"I think below 7,000 is a bit overdone. Hopefully, corporate earnings could soften the impact of these external jitters," Del Castillo said in a separate phone interview.

Last week, US Fed Chair Janet Yellen told a congressional inquiry that a rate hike is a "live possibility" next month as the US economy showed consistent signs of recovery.

Her testimony was followed by a fresh report showing the US jobless rate falling to 5 percent in October.