Short-term U.S. Treasury yields fell on Monday as the collapse of Silicon Valley Bank prompted investors to sharply lower expectations of a big interest rate hike by the Federal Reserve and seek the safety of public debt.
The return on notes to year fell 39 basis points (bps) to 4.192%, its lowest level since Feb. 3 and the biggest one-day drop since the 2008 financial crisis.
It also posted its biggest three-day decline, at 87 bps, since the 1987 Black Monday stock market crash. Yields move inversely to prices.
U.S. banking regulators pledged Sunday to ensure depositors at now-shuttered Silicon Valley Bank had access to their funds. On Monday, HSBC said it will acquire SVB’s British unit.
In light of the crisis, Goldman Sachs (NYSE:GS) predicted that the Fed would not raise rates at its meeting next week, helping to fuel a massive increase in government debt in the near term.
“We no longer expect the FOMC (Federal Open Market Committee) to raise rates at its next meeting on March 22,” Goldman analysts led by chief economist Jan Hatzius said in a note.
“We have kept unchanged our forecast for the FOMC to hike 25 basis points in May, June and July, and we now expect a terminal rate of between 5.25% and 5.5%, although we see considerable uncertainty about the path,” he added.
The yield on 10-year papers subtracted 16 bps to 3.534%, also the lowest since Feb. 3.