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U.S. Feb PPI cooler than expected
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Feb retail sales fall more than expected
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Yields fall, 2s/10s inversion narrows
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Swiss govt, Credit Suisse in talks to stabilize bank
By Gertrude Chavez-Dreyfuss and Alden Bentley NEW YORK, March 15 (Reuters) - U.S. Treasury yields slumped on Wednesday after problems at Swiss banking giant Credit Suisse stoked fears about the impact of rising yields on the global banking sector, with U.S. data showing signs of economic weakness and cooling inflation also adding to declines. U.S. two-year yields, which reflect interest rate expectations dropped to 3.72%, the lowest since September and were last down 23.8 basis points (bps) at 3.989%. Over the last two weeks, the two-year yield has fallen by more than 130 bps.
The yield on 10-year Treasury notes fell 14.4 bps to 3.49%. Since the beginning of the month, it has dropped about 40 bps. The yield curve, as a result, further narrowed its inversion, with the gap between two-year and 10-year yields contracting to -28.60 bps . That's the tightest spread since October. The curve was last at -48.7 bps, as investors significantly reduced rate hike bets.
The yield on the 30-year Treasury bond was down 7 bps to 3.69%.
Credit Suisse caught the market's attention on Wednesday following the collapse of Silicon Valley Bank last week, as European and U.S. bank shares dropped. Shares on Wall Street also fell as Credit Suisse's problems renewed concerns about a banking crisis. Switzerland is under pressure from at least one major government to intervene quickly on Credit Suisse, after the Swiss bank led a rout in European banking stocks on Wednesday. Swiss authorities and European lenders are reportedly discussing ways to stabilize the bank, according to Bloomberg News, citing people familiar with the matter. "The odds of a (rate) hike next week have dropped substantially and that's driven by the risk-off shift," said Zachary Griffiths, senior investment grade strategist at CreditSights in Charlotte, North Carolina. "The risk-off tone in the market broadly has a lot to do with the regional banking sector in the U.S. and Credit Suisse doing the headlines has been driving the moves," he added. Those headlines overshadowed U.S. data that showed an economy slowing down. U.S. retail sales fell moderately, down 0.4% in February, after the prior month's outsized gain, but the underlying momentum remained strong, suggesting the economy continued to expand in the first quarter despite higher borrowing costs. The producer price index also slipped last month, down 0.1% in February, versus January's revised 0.3% gain, much cooler than the 0.3% monthly increase expected.
"The market right now has been really choppy in trying to price the Fed. I think that there’s a lot of people that are trying to find some reason to believe that they are going to pause here for some reason," said Tom Simons, money market economist at Jefferies in New York. "I don't buy it, but if that's what you're looking for and you see a one tenth decline on PPI headline and some weakness in the trade services, and the stuff that reflects more easing in the supply chain pressure, you’ve got that evidence there," he added. The rate futures market has priced in an even chance of the Fed pausing its rate hikes, according to CME's FedWatch.
March 15 Wednesday 3:05PM New York / 1905 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.615 4.7343 -0.102
Six-month bills 4.505 4.6868 -0.189
Two-year note 101-72/256 3.9372 -0.288
Three-year note 102-68/256 3.8178 -0.237
Five-year note 101-246/256 3.5646 -0.231
Seven-year note 102-198/256 3.5464 -0.198
10-year note 100-44/256 3.4791 -0.157
20-year bond 101-20/256 3.7972 -0.111
30-year bond 99-8/256 3.6785 -0.082
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 25.00 3.50
spread
U.S. 3-year dollar swap 15.25 2.25
spread
U.S. 5-year dollar swap 11.50 3.50
spread
U.S. 10-year dollar swap 5.75 1.50
spread
U.S. 30-year dollar swap -40.50 1.00
spread
(Reporting by Alden Bentley and Gertrude Chavez-Dreyfuss; Additional reporting by Karen Brettell; Editing by Andrea Ricci and Kirsten Donovan)
Messaging: rm://gertrude.chavez.reuters.com@reuters.net))