The U.S. banking system is stabilizing after strong actions from regulators, but further steps to protect bank depositors may be warranted if smaller institutions suffer deposit runs that threaten more contagion, U.S. Treasury Secretary Janet Yellen plans to tell bankers on Tuesday. “It feels like the markets a little bit more comfortable with the global central banks being able to manage the regional bank issue in the U.S., and Credit Suisse in the case of the banking system, so there’s a little of relief from that perspective,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. Also, “we didn’t really see a large take-up in the dollar swap lines yesterday,” she added. The Fed said on Sunday it had joined with the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank in a coordinated action to enhance the provision of liquidity through the standing U.S. dollar swap line arrangements. Benchmark 10-year Treasury yields have risen from a six-month low of 3.291% reached on Monday but remain well below their 15-year peak of 4.338% reached on Oct. 21. They were last at 3.585%.
Interest rate-sensitive two-year yields rose to
4.156% and are also up from a six-month low of 3.635% on Monday,
but are sharply below the almost 16-year high of 5.084% hit on
March 8.
The closely watched yield curve between two-year and 10-year
notes remains deeply inverted at minus 58 basis
points, a level that still indicates a looming recession, though
it remains off its extreme levels of minus 111 basis points
reached on March 8.
The next major focus will be the Fed’s interest rate
decision on Wednesday, when many investors expect the U.S.
central bank to hike rates by an additional 25 basis points but
also indicate that further rate decisions will be
data-dependent. Markets will also key in on new rate projections in the
so-called “dot plot” to see how Fed officials are balancing the
need to reign in still high inflation against the risk higher
rates may pose to the banking sector.
“It’s a little bit tricky given that inflation prints thus
far show that there aren’t really any steady signs of
disinflation ... they probably have to stick to their plan so
that they sound credible on not just the policy front but also
on the regulatory front that they have the tools in place to be
able to handle the issues with the regional banks,” said
Rajappa.
The Treasury Department will sell $12 billion in 20-year
bonds on Tuesday and $15 billion in 10-year Treasury
Inflation-Protected Securities (TIPS) on Thursday.
March 21 Tuesday 9:23AM New York / 1323 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.6925 4.8154 0.195
Six-month bills 4.695 4.8893 0.128
Two-year note 100-221/256 4.1559 0.232
Three-year note 101-204/256 3.9795 0.199
Five-year note 101-62/256 3.722 0.152
Seven-year note 101-240/256 3.6808 0.125
10-year note 99-76/256 3.5847 0.108
20-year bond 99-184/256 3.8952 0.062
30-year bond 98-40/256 3.7276 0.066
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 26.00 1.00
spread
U.S. 3-year dollar swap 14.25 0.25
spread
U.S. 5-year dollar swap 9.50 0.75
spread
U.S. 10-year dollar swap 2.50 0.75
spread
U.S. 30-year dollar swap -44.75 0.75
spread
(Reporting by Karen Brettell; editing by Jonathan Oatis)
