SINGAPORE, March 13 (Reuters) - Two-year yields fell sharply
for a third straight day on Monday and interest rate futures
rallied as the failure of two U.S. banks had investors dialing
down interest rate expectations.
U.S. officials stepped in over the weekend to shore up
rattled confidence in the banking system by guaranteeing
deposits at the failed Silicon Valley Bank and closing
down under-pressure lender Signature Bank .
Two-year Treasury yields were down more than 20
basis points at one stage in Asia to a five-week low of 4.343%.
Yields fall when bond prices rise and, if sustained, the
three-day drop in the two-year yield is the largest since 1987.
Fed funds futures surged at the open and then surged
again after Goldman Sachs published a note saying it now expects
the Fed to stand pat next week after a year of rate hikes.
"In light of recent stress in the banking system, we no
longer expect the (Fed) to deliver a rate hike at its March 22
meeting, with considerable uncertainty about the path beyond
March," Goldman analysts said.
Futures pricing now implies a near 20% chance the Fed holds
steady next week and about an 80% chance of a 25 bp hike. Last
week markets had been all but braced for a 50 bp hike.
The futures-implied peak in rates was also wound back
dramatically and sits around 5%, after topping 5.6% last week.
Longer-dated bonds missed out on the rally and the very long
end of the curve was sold, with the risk that a pause for rate
hikes could see sticky inflation persist even longer.
Benchmark 10-year yields bobbled around 3.7%.
(Reporting by Tom Westbrook; Editing by Jacqueline Wong)
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