Bond prices and the $A rallied on hopes US authorities’ emergency measures to stabilise the banking system will be enough to contain any possible contagion.
Bond prices and the Australian dollar rallied on Monday in the hope US authorities’ emergency measures to stabilise the banking system after the Silicon Valley Bank collapse will be enough to prevent further contagion and boost investors’ confidence.to protect depositors at SVB
The yield on three-year bonds, which reflect interest rate expectations, fell as much as 15 basis points in early trading to 3.04 per cent, the lowest since late January, and later steadied at 3.18 per cent. The 10-year bond yield tumbled to a three-month trough of 3.33 per cent before paring back to 3.49 per cent.
“The issues we’re seeing in the US around regional banks show it is quite clear that the Fed has overtightened interest rates,” said Vimal Gor, group chief investment officer for Trovio. “Firstly, instead of doing maybe three or four more hikes, they might just do one to two more, and secondly, this has increased the chance of a recession rather than a soft landing for the US economy.”
The 10-year US rate retreated to 3.74 per cent. The spread between 10-year and two-year bonds narrowed to 76 basis points, from 108 basis points last week, but still remained in deeply negative territory, suggesting a recession is looming. The gap in this part of the curve is a reliable indicator of a recession historically.
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