Treasury two-year yield rebounds after biggest slide in decades

The US Treasury building in Washington, DC, US, on Monday, March 13, 2023. US authorities took extraordinary measures to shore up confidence in the financial system after the collapse of Silicon Valley Bank, introducing a new backstop for banks that Federal Reserve officials said was big enough to protect the entire nation's deposits.

Treasury two-year yields rose on Tuesday after plummeting 61 basis points in the previous session, the biggest drop since the Volcker era in the early 1980s.

The yield rose 11 basis points to 4.08%, its first increase in four days. The latest move comes as traders await US consumer price inflation data on Tuesday for clues on the Federal Reserve’s rate trajectory after the failure of several US banks muddied the outlook for US interest rates.

Goldman Sachs Group Inc. economists as well as asset managers at the world’s largest actively managed bond fund Pacific Investment Management Co. said the Fed may take a breather on the policy rate following the collapse of Silicon Valley Bank. Nomura Securities economists said the Fed may cut its benchmark rate by a quarter percentage-point next week.

US overnight indexed swaps are now pricing for rates to peak at around 4.80% at the May meeting, with nearly 100 basis points of rate cuts priced in by year-end. US February CPI is expected to have increased 0.4% from the previous month, a deceleration from January’s 0.5% increase, according to economists.