Bond yields tumbled on Friday as investors focused on fresh signs of stress in the financial sector after a week of central bank rate hikes.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
3.661%
was 3.69%, down 15.4 basis points. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.318%
was 3.32%, down 10.1 basis points. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.616%
was 3.63%, down 7 basis points.
What’s driving markets
Deutsche Bank shares
DBK,
dropped 9% in Frankfurt trade, putting the health of another systemically important bank in the spotlight. Deutsche Bank’s contingent convertible bonds, or AT1 securities, have dropped sharply in value since Switzerland’s government wiped out Credit Suisse’s AT1 securities after helping UBS in a deal to buy its rival Swiss bank.
Other bank regulators have said they will not follow the precedent of Switzerland, but investors have not been reassured. An Invesco fund that invests in AT1 bonds
AT1,
has dropped 18% this month.
Data released after the close on Thursday showed that U.S. banks slightly reduced their emergency borrowing from the Federal Reserve, to $163.9 billion from $164.7 billion in the latest week.
The Federal Reserve on Wednesday opted to increase interest rates by a quarter-point, putting further stress on the bonds in bank portfolios that have decreased in value because of the rate-hike campaign. Other central banks including the Bank of England also lifted rates this week.
The U.S. economics calendar includes durable-goods orders and flash purchasing managers index data, with St. Louis Fed President James Bullard due to speak.
