Investors scrambled to pull down global rate expectations on Monday and abandoned bets on the Fed upsizing its rate hikes next week, reckoning the biggest American bank failure since the financial crisis will make policymakers think twice.
"We have a big data print tomorrow with CPI and unless market turmoil really continues and leads to a tightening in financial conditions, then the Fed will do 25 bps," said Mark Dowding, chief investment officer at BlueBay Asset Management.Reuters Graphics
All of that helped extend a rally in shorter-dated bonds on Monday, putting two-year Treasuries on course for their best three-day gain since 1987. U.S. rates are now expected to reach a high of around 4.9% in June, down from around 5.7% on Wednesday. "There's going to be much more emphasis on the risks to the outlook from Lagarde on Thursday than if SVB hadn't happened," said Danske Bank chief analyst Piet Christiansen.
Long-dated bond yields also dropped much less than shorter-dated peers, with inflation being a greater risk if hikes were to slow or stop.
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