Volatility exploded across the bond market this week amid growing contagion fears originating from U.S. banks, with the fallout gripping both sides of the Atlantic Ocean.
Analysts described the impact on the U.S. and German bond market as a rolling one in nature over the past five days, producing the biggest single-day drops in yields in well over a quarter of a century. To recap: On Monday, following a weekend government intervention to protect the depositors of California’s Silicon Valley Bank and Signature Bank in New York and to backstop deposits at other institutions, the policy-sensitive 2-year U.S. note yield
TMUBMUSD02Y,
3.854%
experienced its biggest one-day fall since Oct. 20, 1987 by the end of New York trading — though, outside of U.S. hours, the rate dropped by the most since 1982. That intraday drop of almost 60 basis points exceeded the declines seen during the 2007-2009 financial crisis/recession; the Sept. 11, 2001, terrorist attacks; and 1987’s Black Monday stock-market crash. See: Here’s how Silicon Valley Bank collapsedTwo days later, as troubles emerged at Swiss banking giant Credit Suisse
CS,
-9.49%,
the 2-year German yield
TMBMKDE-02Y,
2.376%
saw its biggest daily decline based on available data going back to the country’s reunification period in 1990, according to macro strategist Henry Allen and Jim Reid, head of global economics and thematic research, at Deutsche Bank
DB,
-4.17%.
Source: Bloomberg, Deutsche Bank
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