U.S. Treasury Yields and Stocks Plunge as Fears of Silicon Valley Bank Collapse Grows

Investors flocked to safe-haven assets this week as the 10-year Treasury yield dropped to 3.48%, its lowest rate since April 2021. This past weekend, the 10-year Treasury yield plunged 29 basis points to 3.69%, and the 2-year yield tumbled 27 basis points to 4.59%. Monday morning, the 10-year Treasury yield was down another 19 basis points at 3.5%. The 2-year Treasury yield fell 0.556% to a 4.03% close, the biggest one-day decline since September 2008.

The U.S. dollar also lost ground against the euro and the yen.[0] The CME FedWatch Tool now sees a 51% chance of a 25-basis-point rate hike at the Federal Reserve's March meeting, while nearly 49% expect no change in rates.[1] The market now appears to be pricing in a peak rate of around 4.8%, down from 5% last week.[2]

Asian stocks fell broadly on Tuesday, dragged down by banking shares, as fears over the fallout of Silicon Valley Bank’s collapse gripped the market.[3] European stocks declined in early action on Monday, while U.S. stock futures were pointing higher after a turbulent weekend.[4]

Attention will be directed to the consumer price index on Tuesday concerning economic matters.[0] Economists predict that inflation will increase by 6% on a headline basis and 5.5% on a core basis in the last year.[5] This week, investors will be able to get an insight into the quarterly results of FedEx (FDX), Adobe (ADBE), and Dollar General (DG).[5]

The market volatility has been driven by the collapse of Silicon Valley Bank and the uncertainty over monetary policy ahead of key U.S. inflation data.[6] For approximately one year, the Federal Reserve has been increasing rates and they appear to suggest more increases in the future.[2] Recently, the yield curve inverted by 100 basis points, signaling that the system is facing serious pressure.[2] Now, the market is predicting a 25-basis-point hike in March and then a pause, followed by a chance of rates actually going down by this autumn.[2]

0. “Dow Jones Reverses On SVB Rescue Plan; First Republic, Charles Schwab Crash On Bank Fears” Investor's Business Daily, 13 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-fall-after-svb-rescue-plan-first-republic-crashes-65-on-bank-fears/

1. “Stock Market Indexes Close Mixed In A Volatile Day” Investor's Business Daily, 13 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/stock-market-feels-some-relief-as-rate-hikes-look-smaller/

2. “Wall Street Whiplash: Yields Reverse, Stocks Waver as…” The Ticker Tape, 13 Mar. 2023, https://tickertape.tdameritrade.com/market-news/wall-street-whiplash-yields-reverse-stocks-waver-as-government-vows-to-protect-bank-depositors-19413

3. “Asian stocks plummet as U.S. bank rout spills over By Investing.com” Investing.com, 14 Mar. 2023, https://www.investing.com/news/stock-market-news/asian-stocks-plummet-as-us-bank-rout-spills-over-3029561

4. “European stocks slip in early trade after U.S. bank bailout package” MarketWatch, 13 Mar. 2023, https://www.marketwatch.com/story/european-stocks-slip-in-early-trade-after-u-s-bank-bailout-package-f5078e7f

5. “Stock market news today: Stocks mixed, bank stocks routed as SVB fallout ripples through markets” Yahoo News, 13 Mar. 2023, https://news.yahoo.com/stock-market-news-today-live-updates-march-13-2023-114351107.html

6. “Asian markets tumble as SVB fallout fears rattle banking sector” CNN, 14 Mar. 2023, https://www.cnn.com/2023/03/14/investing/global-markets-asia-svb-fallout-intl-hnk/index.html

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