Treasury yields fell across the board Friday morning, sending the 2- and 10-year rates toward their biggest one-day drops since November, as contagion fears grow about the U.S. banking sector.
What’s happening
- The yield on the 2-year Treasury TMUBMUSD02Y, 4.607% fell to 4.624% from 4.9% on Thursday.
- The yield on the 10-year Treasury TMUBMUSD10Y, 3.710% was 3.745%, down from 3.922% as of Thursday afternoon.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.705% dropped to 3.727% from 3.868% late Thursday.
What’s driving markets
Jitters emerged again early Friday when shares of SVB Financial Group SIVB, tumbled in premarket trading amid analyst downgrades and reports of funds advising clients to pull their money from the bank, more widely known as Silicon Valley Bank.
Bank sector shares had slumped in the U.S. on Thursday, and in Europe and Japan on Friday, after SVB Financial SIVB sold $21 billion in securities earlier this week for a loss of $1.8 billion.
See: Bank carnage drags stocks lower as SVB Financial shares plunge
The banking-sector’s turmoil overshadowed, to some extent, the U.S. Labor Department’s jobs report on Friday.
The U.S. created a robust 311,000 new jobs in February, above economists’ forecast of 225,000, and should have raised the odds of another sharp interest rate hike by the Federal Reserve on March 22. Instead, bond traders, investors and analysts focused on mild wage growth and the slight uptick in the unemployment rate. And fed funds futures traders priced in a 63.5% chance of a quarter-of-a-percentage-point hike later this month.
See: Jobs report shows strong 311,000 gain in February, puts pressure on Fed for bigger rate hike
Earlier this week, Fed Chairman Jerome Powell said in Congressional hearings that the central bank might resume bigger interest-rate increases depending on the data.
What analysts are saying
“Thursday’s flight to quality price action extended overnight in the Treasury market as concerns about contagion in the financial sector fueled the anxiety that brought 10-year yields as low as 3.797%,” said BMO Capital Markets strategists Ben Jeffery and Ian Lyngen. “We’ll be the first to admit that just a few sessions ago, regional bank solvency concerns would not have made it on our list of things to watch during a session containing one of the most pivotal payrolls prints in recent memory.”
“While the risk to the overall financial system appears to be minimal, the current episode nonetheless exemplifies the realities of a world with lofty inflation and monetary policy into restrictive territory,” they wrote in a note. “Whereas there was a time not so long ago that the cushion of easy access to capital and suppressed funding costs would have helped absorb any extraneous shocks, the removal of accommodation means that cracks will emerge and continue to bolster demand for Treasuries.”
