The return on year notes fell below 4% for the first time since last October and then lost 48 basis points (bp), to 4.107%. The two-year yield, which reflects expectations for rate moves, was on track for its biggest daily decline since September 2008, during the global financial crisis.
It also posted its biggest three-day decline of 97bp since the “Black Monday” stock crash of 1987. Yields move inversely with prices.
The two-year/10-year yield curve also narrowed sharply on Monday, trimming its investment to -57.40bp as investors lowered rate hike expectations. That is the narrowest gap since early January. Then it was located at -63.20 bps.
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“The market thinks it’s not just SVB (Silicon Valley Bank), but several banks. The sharp increase in policy rates and sovereign yields over the last year and a half has put many banks under stress,” said Stan Shipley, fixed income strategist at Evercore ISI in New York.
“The consequence is that the outlook for rates is not going to be as high as previously thought. Last Wednesday, there were people thinking that 6% (maximum federal funds rate) was a sure thing. I don’t think anyone thinks that now,” Shipley added.
In light of the crisis, Goldman Sachs forecast that the Fed would not raise rates at its meeting next week, helping fuel a big rally in short-term government debt on Monday. Meanwhile, the 10-year Treasury yield fell 17 bp to 3.520%, after falling back to 3.418%, the lowest level since February 3.
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