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. 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. The market now appears to be pricing in a peak rate of around 4.8%, down from 5% last week.
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. European stocks declined in early action on Monday, while U.S. stock futures were pointing higher after a turbulent weekend.
Attention will be directed to the consumer price index on Tuesday concerning economic matters. Economists predict that inflation will increase by 6% on a headline basis and 5.5% on a core basis in the last year. This week, investors will be able to get an insight into the quarterly results of FedEx (FDX), Adobe (ADBE), and Dollar General (DG).
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. For approximately one year, the Federal Reserve has been increasing rates and they appear to suggest more increases in the future. Recently, the yield curve inverted by 100 basis points, signaling that the system is facing serious pressure. 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.
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