Ripples of the Silicon Valley Bank collapse continue in the financial world even after government intervention on both sides of the Atlantic.
The two-year Treasury yield fell by 60 basis points on Monday, briefly dipping below 4 per cent. Two-year yields are particularly sensitive to interest rate expectations, and yesterday’s fall was the largest since September 2008. The two-day decline in the two-year yield marked the steepest drop since October 1987.
Part of the fall in yields has been driven by a flight-to-safety in the wake of financial stability concerns. Higher demand for Treasuries pushes up the price, with yields moving inversely. But John Canavan, lead analyst at Oxford Economics, noted on Tuesday that “with the major equity indices higher overall today, that does not appear to explain all of the move”. He added that “a repricing of Fed rate expectations” is also fuelling the shift.