US bond yields post biggest drop since 2008 financial crisis as Silicon Valley Bank collapse rattles markets
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- Yields on 2-year US Treasury notes had their largest fall since 2008 Monday.
- Investors are flocking to bonds as a safe haven as the failure of SVB rattles bank stocks.
- They're also betting that the Federal Reserve will ease up on its tightening campaign to stop contagion spreading.
Short-dated US Treasury bond yields posted their largest drop in nearly 15 years Monday as the sudden collapse of Silicon Valley Bank continued to send shockwaves through financial markets.
Yields on 2-year US Treasury notes fell as much as 44 basis points in early-morning trading and were down 32 basis points at 4.27% at last check, for their biggest one-day fall since the 2008 financial crisis, according to data from Refinitiv.
Other government bonds also rallied Monday, with yields on 10-year US Treasury notes falling 17 basis points to around 3.54%.
The drop-off in yields is a sign that investors are piling into government bonds as a safe haven from the high volatility that's gripped markets since SVB was shut down by regulators Friday. Yields fall when bond prices rise.
SVB's collapse has US-listed stocks on edge and has dragged on the share price of banking giants like JPMorgan and Bank of America, as well as regional banks like First Republic.
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.