The U.S. 2-year bond yield has shed more than 80 basis points in three sessions as expectations for a 50 basis point rate increase by Fed in March evaporate.
Bond yields fell sharply on Monday as investors bet that the failures of Silicon Valley Bank and Signature Bank would cause the Federal Reserve to raise borrowing costs more slowly as it battles inflation.
What’s happening What’s driving markets The monetary policy-sensitive 2-year Treasury yield plunged at one stage early on Monday by more than 40 basis points as investors made bets that worries about the banking system in the wake of the collapse of SVB SIVB and Signature Bank SBNY would force the Federal Reserve to slow the pace of interest rate rises.Markets are pricing in a 95.2% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5.
What are analysts saying “The Fed may now find itself between a rock and a hard place. It wants to tighten policy to keep a lid on inflation but will now face questions as to whether policy is already too tight, given this nasty wobble in the banking system and the pressure higher rates are already putting on many companies’ cash flows,” said Russ Mould, AJ Bell investment director.
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