US Treasury Yields Plunge in Wake of SVB Collapse, Fed Rate Hike Pause Expected
The 10-year U.S. Treasury yield tumbled to 3.69% on Friday and plunged further to a 21-basis-point drop to 3.48% on Monday morning. The 2-year Treasury yield plummeted 50 basis points to 4.9%, as investors bet on a pause in the Federal Reserve’s rate hike cycle. This follows the SVB collapse, which has shaken the markets and caused a “safe-haven” flight to bonds.
The 10-year US Treasury yield dropped by 0.03 percent to 3.67 percent, and the two-year note yield declined 0.14 percent to 4.45 percent. Prices move inversely to yields. The yield on 10-year German Bunds decreased by 0.06 percent to 2.44 percent.
The 10-year Treasury yield plunged 29 basis points to 3.69% this past week, after hitting a 2023 high of 4.09% on March 2, while the 2-year yield tumbled 27 basis points to 4.59%, including 31 basis points on Friday and 48 points on Thursday-Friday.
The Cboe Volatility Index VIX, also known as the stock-market fear gauge, posted its biggest spike since June on Thursday and continued to rise on Monday. On Thursday, the gauge increased by 18%, or 3.5 points, and continued to show modest growth on Monday.
On Monday, U.S. stocks experienced an increase in value following the implementation of strong measures by federal banking regulators to address the repercussions of Silicon Valley Bank's collapse. In order to forestall any potential runs on similar banks in the future, the Federal Reserve will make additional funding available to eligible financial institutions.
Goldman Sachs is forecasting that the Federal Reserve will hold off on raising interest rates at the upcoming Federal Open Market Committee meeting, due to the increasing instability caused by the bank failure. Silvergate Capital, a cryptocurrency lender, announced this Wednesday that it is going through the process of liquidating its assets and closing its business.
HSBC agreed to buy Silicon Valley Bank’s British arm for £1 and keep it operating for customers, while on Friday the Labor Department reported the U.S. economy added 311,000 jobs in February, far exceeding economist estimates of 200,000 new jobs. The wages of Americans increased by 4.6% from the previous year, while the jobless rate went up from 3.4% to 3.6%.
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1. “US bank stocks tumble and Treasuries rally amid SVB collapse” Financial Times, 13 Mar. 2023, https://www.ft.com/content/bbeea0e6-b5d6-4c6f-91f3-06508aa42351
2. “VIX keeps climbing after government intervention fails to ease investor anxiety” MarketWatch, 13 Mar. 2023, https://www.marketwatch.com/story/vix-keeps-climbing-after-government-intervention-fails-to-ease-investor-anxiety-cdac2b19
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