US bond yields post biggest drop since 2008 financial crisis as Silicon Valley Bank collapse rattles markets
Bonds are also rallying because investors are anticipating that the Federal Reserve will have to ease up on its campaign to crush inflation in a bid to stop contagion spreading from SVB's implosion, according to analysts.
The central bank has raised interest rates from near-zero to just under 5% over the past year to try to quell soaring prices, but traders believe it will back away from a 50-basis-point hike at its meeting later this month to support the embattled banking sector. "Markets are now quickly pricing in only a quarter-point increment or even no increase at all on 22 March and the yield on the benchmark 2-year and 10-year US Treasuries is falling quickly," AJ Bell investment director Russ Mould said Monday.
Monday's bond-buying spree came after a weekend when 2-year yields fell 48 basis points for their sixth-biggest drop since 1987, according to data from Bloomberg. Yields have only fallen by such a huge amount during some of the largest crises in US stock market history, including the Black Monday crash of 1987, the 9/11 terrorist attacks in 2001, and Lehman Brothers' collapse at the height of the 2008 crisis.
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