September 24, 2023

Two- and 10-year Treasury yields fell on Friday, posting weekly lows, as investors focused on fresh signs of stress in the financial sector.

Meanwhile, St. Louis Fed President James Bullard, a policymaker, said lower yields could offset some of the negative fallout from the banking sector.

What happened
what drives the markets

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Deutsche Bank DBK,
It fell 8.5% in Frankfurt trading, bringing the spotlight on another systemically important bank’s position. Deutsche Bank’s contingent convertible bonds, or AT1 securities, have fallen sharply in value as Switzerland’s government wiped out similar debt on Credit Suisse as part of a deal for Swiss bank UBS to be acquired by UBS Is.

Other bank regulators have vowed not to follow Switzerland’s example, though investors are not convinced. An Invesco Fund that invests in AT1 Bonds AT1,
Has dropped 18% this month.

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Separately, Treasury Secretary Janet Yellen called a meeting of the Financial Stability Oversight Council on Friday after Moody’s warned that the US banking “upheaval” could not be controlled. Meanwhile, the bond market sees a good chance the Fed will need to cut rates by a full percentage point by the end of the year.

In Friday’s US data release, durable-goods orders fell 1% in February due to lower demand for new cars and passenger planes, and surveys from S&P Global showed the economy accelerated in March but so did inflation. Just happened.

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LookBond market ‘screams’ for rate cut as yield curve points to real-time recession in US economy

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what the analysts are saying

“The recent banking stress has put markets on high alert and this was a most unwanted development at a time when the Fed is attempting a soft landing for the US economy,” said Tom Garretson, senior portfolio strategist at RBC Wealth Management.

“We believe the Fed has indeed raised rates and that two 25 basis point cuts will be needed later this year as US recession risks end at 4.50 percent in 2023, higher than the Fed’s current projection.” Too low.”

Look These charts suggest the uptrend in US 10-year Treasury yields is over