Treasury yields fall amid bank stock pressure

The U.S. Treasury yields fell on Wednesday as the downturn in Credit Suisse led to a drop in bank shares, prompting investors to seek out safer bonds. The yield on the 10-year Treasury fell by just over 15 basis points to 3.481%, while the 2-year Treasury yield was trading at 3.933% after falling by more than 29 basis points. This is the largest three-day decline since the 1987 stock market crash, following the Silicon Valley Bank’s failure last week. The fall in yields came as the decline in Credit Suisse’s U.S.-listed shares put pressure on bank stocks, causing a flight to safety, which pushed up bond prices and lowered yields.

Peter Boockvar, chief investment officer at Bleakley Financial, described Credit Suisse as a “slow-moving car crash,” adding that European banks faced similar problems to many U.S. banks, such as owning too many negative yielding bonds on their balance sheets, which were guaranteed to lose money if held to maturity. This comes a week ahead of a highly anticipated Federal Reserve policy decision, where investors had been expecting the Fed to announce a 50 basis point rate hike at the conclusion of its meeting. However, the aftermath of Silicon Valley Bank’s collapse caused uncertainty about the Fed’s policy path.

The producer price index fell 0.1% in February from the prior month, despite economists polled by Dow Jones expecting a month-over-month gain of 0.3%. The index increased 4.6% on an annualised basis, showing downward movement from the revised 5.7% level seen when comparing January to the same month a year ago. Economists and investors now consider that the Fed may prioritise financial stability and some suggest that the central bank may pause rate hikes.

However, according to an estimate by the CME Group, a 25 basis point rate hike is now widely expected as the Fed continues to work to cool the economy and ease inflation. The fall in yields on Wednesday is indicative of a broader trend in the bond market, which has been experiencing heightened volatility over the past few weeks. Investors are increasingly cautious about the prospect of higher interest rates, which could have a knock-on effect on economic growth and corporate earnings. It remains to be seen how the Fed will respond to these concerns and what steps they will take to ensure stability in the financial markets.