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Treasury Yields Fall as Investors Flock to Bonds With Bank Stocks Once Again Under Pressure

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A trader works on the floor during morning trading at the New York Stock Exchange (NYSE) on March 10, 2023 in New York City. 

U.S. Treasury yields fell Wednesday as a downturn in Credit Suisse once again pressured bank shares, prompting a flight to traditionally safer bonds.

The yield on the 10-year Treasury was down by nearly 16 basis points to 3.477%. The 2-year Treasury yield was trading at 3.919% after falling by just over 30 basis points. It had posted its largest three-day decline since the October 1987 stock market crash following the Silicon Valley Bank's failure last week.

The yield declines came as investors as a tumble in Credit Suisse's U.S.-listed shares once again put pressure on bank stocks. The Swiss national bank said Wednesday afternoon it could provide liquidity to the bank if needed. The flight to safety pushed up prices, which in turn lowered yields.

"Credit Suisse has been a slowing moving car crash for years it seems but now today's news of course is happening in the vortex of SVB," wrote Peter Boockvar, chief investment officer at Bleakley Financial.

"I think the problem European banks face, all of which have had to manage [negative interest rate policy] and massive QE for almost 10 yrs and managed to survive, is similar to many US banks in that they own too much duration with I'm sure plenty of negative yielding bonds on their balance sheets which are guaranteed to lose them money if held to maturity," he added.

This all comes a week ahead of a highly anticipated Federal Reserve policy decision.

Many investors had been expecting the Fed to announce a 50 basis point rate hike at the conclusion of its meeting, after Fed Chairman Jerome Powell said that rates would likely go higher than expected. But the aftermath of Silicon Valley Bank's collapse, which saw the banking sector struggle and led investors to focus on safer assets like government bonds, caused uncertainty about the Fed's policy path.

The producer price index fell 0.1% in February from the prior month despite economists polled by Dow Jones expecting a month-over-month gain of 0.3%. The index increased 4.6% on an annualized basis, showing downward movement from the revised 5.7% level seen when comparing January to the same month a year ago.

Economists and investors considered that the Fed may now prioritize financial stability, with some going as far as suggesting the central bank would pause rate hikes. However, according to an estimate by the CME Group, a 25 basis point rate hike is now widely expected as the Fed continues to work to cool the economy and ease inflation.

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