The yield on the 2-year Treasury note fell sharply on Friday as Silicon Valley Bank closed on a flight to safer assets such as government bonds.
The yield fell by at least 46 basis points over two days, a sharp decline not seen since September 2008, when markets were in the grip of the global financial crisis. Perhaps coincidentally, the flight to bond safety this week was caused by the biggest bank failure since the financial crisis.
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Earlier this week, the yield on the 2-year Treasury note was trading above the key 5% level. It was last trading 32 basis points lower at 4.58%.
Meanwhile, the benchmark 10-year note yield fell nearly 23 basis points to 3.691%. Yields and prices move in opposite directions and one basis point equals 0.01%.
“While Treasury yields have pulled back sharply this week and breached a number of key support levels, there is little silver lining as the downside was largely driven by reserve flows safe related to the risk of recession and fear of the collapse of the banking sector,” said Adam. Turnquist, chief technical strategist at LPL Financial.
Management closed Silicon Valley Bank on Friday. Shares had fallen more than 60% on Thursday as the bank sought to raise more than $2 billion in capital to offset losses from bond sales. Before the shutdown, shares were down nearly 63% premarket.
CNBC’s David Faber previously reported that the bank was in talks to sell itself after efforts to raise capital failed, citing sources familiar with the matter. But a rapid outflow of deposits reportedly overwhelmed the sales process, complicating the ability to truly evaluate the bank.
The news led to another day of losses for the wider stock market, as traders sought safety as turmoil hit the regional banking sector.
In other news, nonfarm payrolls data for February rose more than expected, but wage growth came in lower than expected and unemployment edged higher, lending credence to the argued that the labor market was cooling a bit despite the better than expected pay number.
The Federal Reserve has been raising interest rates in an effort to cool the economy, including the labor market, and reduce inflation.
The data comes as investors consider the Fed’s next interest rate policy moves. Many expect the central bank to increase the pace of rate hikes again and announce a 50 basis point hike at its next meeting later this month.
