In the fallout from Powell’s comments, the two-year yield climbed to 5.08% on Wednesday, the highest level since 2007, setting the stage for a snap-back. The Friday move capped a volatile week for the bond market. Its 48-basis-point drop over two days is bigger than any since 2008. It fell as much as 29 basis points to 4.58%. Meanwhile, the two-year Treasury yield on Friday was on track for its second-straight drop of more than 20 basis points. “The reaction to Powell was way too aggressive.” That revision downward came as the Labor Department’s employment report showed some cooling in the job market and the collapse of Silicon Valley Bank in California raised concerns about the financial health of lenders.įed officials “do have to pay attention to this because something is apparently starting to break, and they have raised rates a lot,” said Tony Farren, managing director at Mischler Financial Group Inc. The expected peak is now down sharply from the 5.7% that was priced in earlier this week after Fed Chair Jerome Powell in Congressional testimony seemed to open the door to a re-acceleration in the pace of rate hikes. But with rising borrowing costs subsequently taking the blame for the year’s first bank failure, pricing of swaps linked to Fed meetings shifted Friday to levels suggesting the central bank’s policy rate will peak at around 5.3% in June and end the year below 5%. SVB’s 44-Hour Collapse Was Rooted in Treasury Bets During PandemicįDIC Races to Return Some Uninsured SVB Deposits MondayĪs recently as Wednesday, a half-point rate hike this month was viewed as likelier than another quarter-point move and a rate cut later this year was counted out. SVB Fallout Spreads Around World From London to Singapore US Discusses Fund to Backstop Deposits If More Banks Fail (Bloomberg) - Derivative traders lost no time re-instating bets that the Federal Reserve will cut interest rates before the year is out.
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