First Citizens BancShares Inc cheered investors when it said on Monday it would acquire the deposits and loans of failed Silicon Valley Bank, closing one chapter in the crisis of confidence that has ripped through global financial markets. Treasuries have been volatile as investors try to gauge the impact bank failures will have on lending and growth and what that will ultimately mean for the path of interest rates. “We’re really flying blind in terms of trying to get a sense of how much more contagion there’s going to be in the banking system, step 1, and then step 2 whether that’s going to have broad economic fallout and step 3 how big is the fallout,” said Thomas Simons, money market economist at Jefferies in New York. “As a consequence, the market trades very skittish and emotionally and a lot of information’s trying to be processed at the same time but it’s been so incomplete that we get starkly different views coming out of the consensus at any given time,” Simons said. Benchmark 10-year yields rose 15 basis points to 3.526% on Monday. They are up from a six-month low of 3.285% reached on Friday, but remain below a 15-year high of 4.338% from Oct. 21. Two-year yields rose 23 basis points to 4.008%, up from a six-month low of 3.555% on Friday but 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 was last at minus 49 basis points. The two-year yields hit a session high after the Treasury Department saw weak demand for a $42 billion sale of two-year notes, the first auction of $120 billion in short- and intermediate-dated supply this week.
The notes sold at a high yield of 3.954%, more than two basis points above where they had traded before the auction. Demand for the notes was 2.44 times the amount on offer, the lowest ratio since November 2021. The Treasury will also sell $43 billion in five-year notes on Tuesday and $35 billion in seven-year notes on Wednesday. Analysts expect bank headlines to continue to dominate market moves in the short-term as markets wait on key jobs and inflation data. Top U.S. banking regulators plan to tell Congress that the overall financial system remains on solid footing after the recent bank failures, but will comprehensively review their policies in a bid to prevent future collapses. Minneapolis Fed president Neel Kashkari said on Sunday that stress in the banking sector and the possibility of a follow-on credit crunch brought the U.S. closer to recession. It comes after St. Louis Fed President James Bullard said on Friday that the U.S. central bank would likely need to raise interest rates higher than expected, while Atlanta Fed President Raphael Bostic said that the Fed's main job was to remain focused on getting inflation lower.
Fed funds futures traders are now pricing in a 51% chance of
a 25 basis point rate increase in May, and a 49% probability
that rates stay unchanged, though they still see the benchmark
rate dropping to 4.20% by December, from 4.83% now. March 27 Monday 3:05PM New York / 1905 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.6225 4.739 0.049
Six-month bills 4.655 4.8434 0.089
Two-year note 101-33/256 4.0078 0.231
Three-year note 102-82/256 3.7897 0.204
Five-year note 101-214/256 3.5894 0.181
Seven-year note 102-160/256 3.5684 0.165
10-year note 99-200/256 3.5261 0.148
20-year bond 99-188/256 3.8941 0.119
30-year bond 97-168/256 3.756 0.112
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 29.00 -2.25
spread
U.S. 3-year dollar swap 16.50 -1.00
spread
U.S. 5-year dollar swap 6.50 -2.00
spread
U.S. 10-year dollar swap -1.00 -0.50
spread
U.S. 30-year dollar swap -47.25 -0.75
spread
(Reporting by Karen Brettell; Editing by Alison Williams)
