Fed Rate Hike Odds Drop as Treasury Yields Plunge and Market Panic Sets In

The 10-year Treasury yield tumbled 21 basis points to 3.48% last week, while the 2-year Treasury yield plunged 50 basis points to 4.9%, as Fed rate hike odds fell. The 10-year yield fell to 3.44%, and the 2-year yield slumped to 3.88%. The 10-year Treasury yield decreased by 14 basis points to 3.49%. The 2-year Treasury yield dived 25 basis points to 3.97%.

The sell-off hit the Big Four trillion-dollar banks: Citigroup’s share price dived 7.45%, Wells Fargo sank 7.1%, Bank of America plunged 5.8% and JP Morgan fell 1.8%.[0] Yesterday, the likelihood of the Federal Reserve raising the interest rate by 0.25% at its next meeting increased to 78%, while the probability of the bank taking a break dropped to 23% from 35%.[1] CME Group (opens in new tab) has ruled out the possibility of a 50 bp rate hike.[2]

The steep declines of the banking sector spread across global markets, with the Dow dropping more than 500 points and the S&P, Nasdaq, and Russell 2000 each slipping between 1.5-2%. CNN’s Fear & Greed Index dropped to 22, indicating extreme fear in the market.[3]

The latest economic data gave insight into the state of inflation.[3] For the 12 months ending in February, the Producer Price Index (a metric that gauges prices paid for goods and services by businesses prior to being sold to consumers) dropped to 4.6%.[3] This suggests that the Fed is making headway in its fight against inflation.[3]

President Biden reassured Americans that the nation’s banking system is secure after the fallout. At a press conference, President Biden assured Americans that the banking system is secure, and that no losses will be shouldered by the taxpayer. He emphasized that deposits are safe. The managers of these banks will be let go and investors in these banks will not be safeguarded.[4]

On Friday, the Federal Deposit Insurance Corporation (FDIC) intervened to protect depositors and uphold the stability of the financial system by seizing control of Silicon Valley Bank.[5] Western Alliance Bancorp and PacWest Bancorp also saw sharp declines, while First Republic Bank fell after news of fresh financing failed to reassure investors.[0]

0. “$100BN wiped off US banking market in SINGLE DAY in bloodbath on Wall Street” Daily Mail, 13 Mar. 2023, https://www.dailymail.co.uk/news/article-11855573/100BN-wiped-banking-market-SINGLE-DAY-bloodbath-Wall-Street.html

1. “What To Do As S&P 500 Breaks Final Support; Watch JPMorgan, These Stocks | Investor’s Business Daily” Investor’s Business Daily, 12 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/what-to-do-as-sp-500-breaks-final-support-watch-jpmorgan-these-bank-stocks/

2. “Stock Market Today: Markets Rise as Bank Stocks Bounce” Kiplinger’s Personal Finance, 14 Mar. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-markets-rise-as-bank-stocks-bounce

3. “Dow Jones today falls 500 points amid banking tumult after the collapse of Silicon Valley Bank and Signature Bank” WABC-TV, 15 Mar. 2023, https://abc7ny.com/dow-jones-today-wall-street/12958372/

4. “Bank collapse hits home for Black-owned banks as Republicans blame ‘woke’ culture” Yahoo News, 15 Mar. 2023, https://news.yahoo.com/bank-collapse-hits-home-for-black-owned-banks-as-republicans-blame-woke-culture-211511843.html

5. “The dominos are starting to fall… | Kitco News” Kitco NEWS, 10 Mar. 2023, https://www.kitco.com/news/2023-03-10/The-dominos-are-starting-to-fall.html