TREASURIES-Yields rise as central bank efforts to calm markets take hold

(Adds details, updates prices) NEW YORK, March 20 (Reuters) - U.S. Treasury yields rose on Monday as the takeover of Credit Suisse and central bank steps to shore up liquidity helped allay investor concerns as they gauge whether the Federal Reserve may pause raising interest rates later this week. Major central banks, faced with the risk of a fast-moving loss of confidence in the stability of the financial system, moved on Sunday to bolster cashflow around the world. The two-year U.S. Treasury yield, which often moves in step with interest rate expectations, rose 7.8 basis points to 3.924% after sliding to 3.635% in Europe. The two-year yield has plunged since it peaked on March 8 at a 15-year high of 5.084% following hawkish congressional testimony by Fed Chairman Jerome Powell. Days later Silicon Valley Bank failed, sparking a rout in banking stocks and fears not only that central bank monetary tightening would spark a recession as rising credit costs crunched both businesses and households, but also of a global banking crisis. The rise in yields suggests a massive flight to quality last week and early in Asia has ebbed. "All the major central banks are behind making sure that things turn out right," said Tom di Galoma, co-head of global rates trading at BTIG, speaking in London. "Nobody has cut rates, but at the same time there's a growing feeling amongst U.S. investors, and especially from myself, that the Fed probably has to take a pass this week and probably won't increase rates," said New York-based di Galoma. Pricing in fed funds futures have been volatile for the past week, swinging between the odds of no hike when policymakers conclude a two-day meeting on Wednesday, and a 25 basis point increase. A 50 basis points rise is now seen as unlikely. Fed funds futures currently show a 28.4% probability of the Fed holding its overnight rate at 4.5%-4.75%, and a 71.6% likelihood of a 25 basis point increase, CME's FedWatch Tool shows. But the market also is betting the Fed cuts rates this summer and that by December its target rate will be 3.967%, down from roughly 5.6% two weeks ago. Late on Sunday, UBS Group AG agreed to buy Credit Suisse Group AG in a deal engineered by Swiss authorities. UBS will pay 3 billion Swiss francs ($3.23 billion) for its smaller rival and assume up to $5.4 billion in losses.

The takeover came after the 167-year-old Credit Suisse became the biggest victim of the turmoil unleashed by SVB's collapse, even after it received $54 billion from the Swiss National Bank last week. The central banks' action on Sunday echoed steps taken to offset the impact of the COVID-19 pandemic in 2020 and efforts to bolster global finances after the U.S. housing market cratered and stoked the Global Financial Crisis in 2007 to 2009. The yield on benchmark 10-year Treasury notes rose 8.4 basis points to 3.481%. The Treasury yield curve measuring the difference between two- and 10-year notes , which is seen as a recession harbinger, was last at -45.1 basis points.

The curve's inversion last week lessened to -28.6 bps, the narrowest spread since October, as investors quickly reduced the rate hike scenarios this year. The 10-year TIPS breakeven rate was last at 2.094%, indicating the market sees inflation averaging about 2.1% a year for the next decade.

March 20 Monday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 4.5025 4.6147 0.156 Six-month bills 4.595 4.7796 0.026 Two-year note 101-76/256 3.924 0.078 Three-year note 102-96/256 3.7756 0.074 Five-year note 101-240/256 3.5686 0.103 Seven-year note 102-180/256 3.5569 0.098 10-year note 100-40/256 3.4809 0.084 20-year bond 100-144/256 3.8341 0.071 30-year bond 99-76/256 3.6638 0.063
DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)
U.S. 2-year dollar swap 25.00 -1.75
spread
U.S. 3-year dollar swap 14.00 -0.50
spread
U.S. 5-year dollar swap 8.75 -2.75
spread
U.S. 10-year dollar swap 1.75 -2.00
spread
U.S. 30-year dollar swap -45.50 -2.25
spread

(Reporting by Herbert Lash, additional reporting by Ankur Banerjee in Singapore, Georgina Lee in Hong Kong and Karen Brettell in New York; Editing by Simon Cameron-Moore, Chizu Nomiyama and Richard Chang)

Messaging: herb.lash.reuters.com@reuters.net))

Reuters

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TREASURIES-Yields rise as central bank efforts to calm markets take hold

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