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On Monday, March 13, short-term U.S. Treasuries returned in line with levels seen during the 2008 crisis, while the collapse of prominent financial institution Silicon Valley Bank led investors to strongly expect a sharp rise in U.S. interest rates as the Federal Reserve and seek the safety of public debt.
In the case of the notes, the yield on the notes fell below 4% for the first time since October, before falling 48 basis points (bp) to 4.1%.
The two-year Treasury yield, which is driving interest rate expectations, was on track for its biggest one-day drop since September 2008 during the global financial crisis.
They also posted their biggest three-day drop of 97 basis points since the “Black Monday” stock market crash of 1987. When prices change, yields do the opposite.
As for the two-year/10-year yield curve, it also narrowed sharply on Monday, with gold lowering its benchmark to -57.40 basis points as investors scaled back rate hike expectations. That’s the smallest gap since early January. Then at -63.20 bps.
“The market is not just thinking about SVB (Silicon Valley Bank), but a lot of banks. A year and a half of sharp increases in policy rates and high yields have put a lot of pressure on many banks,” said Stan Shipley, fixed income manager at Evercore ISI in Venice.
Against this backdrop, it is expected that H’s actions related to rate hikes could lead to continued systemic spread of risk, affecting other US banks.
“At the end of the day, the interest rate outlook is not as high as thought. Last Wednesday there were people who thought 6% (the fed funds rate) was a sure thing. I don’t think anyone thinks that anymore,” Shipley added.
Against this backdrop, Goldman Sachs’ forecast that the Federal Reserve will not raise interest rates at its meeting next week helped drive a sharp rise in short-term government debt on Monday. Meanwhile, the 10-year U.S. Treasury yield fell 17 basis points to 3,520%, retreating to 3,418%, the lowest since Feb. 3.
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