Bond yields fall with focus on bank health, next week’s Fed meeting

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Bond yields fell on Friday, as traders balanced worries about the banking sector with expectations about how high interest rates will go to combat inflation.

What’s happening
  • The yield on the 2-year Treasury

    was 4.15%, down 4 basis points. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury

    was 3.54%, down 4.5 basis points.

  • The yield on the 30-year Treasury

    was 3.66%, down 4.5 basis points.

What’s driving markets

Major banks including JPMorgan, Citigroup, Bank of America and Wells Fargo agreed to deposit $30 billion of uninsured deposits into First Republic Bank. That came as the Federal Reserve reported a combined $165 billion of borrowing, mostly through its discount window but also the new facility where bonds trading at a discount can be used as collateral, at par value.

Ahead of next week’s Fed rate decision, data on industrial production and consumer sentiment are set for release.

“Despite financial stability concerns, we expect a 25bp hike next week as inflation remains elevated,” said fixed-income strategists at Societe Generale. That’s the view of the market as well, with an 86% probability of a hike next week, according to the CME’s FedWatch tool that is based on fed fund futures activity.

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