Long-Term Treasuries Suffer Worst Day In 2023 As Markets Rethink Fed Policy Path

by Piero Cingari Benzinga Staff Writer

Zinger Key Points

U.S. Treasury yields soar after First Citizens' takeover of Silicon Valley Bank
30-year yields post the largest daily rise in six months, while a long-term Treasury ETF fell the most year-to-date.
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The acquisition of Silicon Valley Bank by First Citizens BancShares Inc FCNCA and rumors of a U.S. government's extension of emergency lending arrangements provided relief to markets and the banking sector on Monday.

But it also resulted in significant shocks in Fed interest rate expectations and Treasuries' price action.

Investors have repriced higher expectations of a Fed hike in interest rates in May, which is now about a 50% probability, according to the CME Group FedWatch Tool, and have effectively priced out a complete 25 basis point cut this year.

The move has been dictated by rising expectations the Fed would become less dovish if the financial sector crisis eases. In the previous weeks, the market had in fact substantially discounted interest rate cuts due to predictions that a banking crisis would lead to a recession.

Treasuries Sold Off Amid Less Dovish Fed Bets: On Monday, U.S. Treasury yields rose across the board. The yield on the two-year note increased by 24 basis points in a single day, surpassing the 4% level once again.

The 10-year note yield increased by 15 basis points to 3.53%. Also, the 30-year Note yield increased by 12 basis points to 3.77%, marking the largest daily rise in yields since September 2022.

Given the extended duration, long-term Treasury bond price action was rather extreme.

The iShares 20+ Year Treasury Bond ETF TLT fell 2.3% on the day, posting the worst daily performance since the beginning of the year.