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US yields may jump back to 4% as SVB rescue reverses haven trade

Bloomberg
Bloomberg • 2 min read
US yields may jump back to 4% as SVB rescue reverses haven trade
Even greater uncertainty was thrown on the Fed’s rate outlook after the second-largest US bank failure in history whiplashed markets late last week. Photo: Bloomberg
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US 10-year Treasury yields may snap back up to 4% as government efforts to quash contagion risks from the collapse of Silicon Valley Bank damp demand for haven assets.

That’s the view of Mitsubishi UFJ Morgan Stanley Securities Co. and RBC Capital Markets, who see a risk US sovereign debt will relinquish its biggest two-day gain since the onset of the pandemic after authorities guaranteed access to SVB deposits. US inflation data due Tuesday may send traders into another frenzy should prices rise faster than expected, putting more selling pressure on Treasuries.

“Four per cent is possible this week if the banking sector fears subside and the US CPI data is on the strong side,” Alvin Tan, strategist at RBC in Singapore, said of 10-year yields. “The only certainty is that volatility will stay high.”

Even greater uncertainty was thrown on the Fed’s rate outlook after the second-largest US bank failure in history whiplashed markets late last week. Ten-year Treasury yields slumped about 30 basis points in two days to end Friday at 3.70%, before swinging between 3.66% and 3.76% Monday.

“The US authorities have swiftly taken bold measures to ensure anything unexpected won’t happen,” said Kenta Inoue, senior bond strategist at MUFG in Tokyo. Two-year yields may also rebound to 5% as investors bet “SVB’s collapse won’t pose a systemic risk and won’t lead to a financial crisis,” he said.

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