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Mar 16, 2023  |  News

U.S. Yields Rise as Banking Tension Abates with Financial Support

(Reuters) U.S. Treasury yields rose in choppy trading on Thursday after falling overnight, as banking worries eased on news of financial support for embattled lenders Credit Suisse and First Republic Bank.

Credit Suisse became the first major global bank to be thrown an emergency lifeline since the 2008 financial crisis as fears of contagion swept the banking sector. And major U.S. banks led by JP Morgan Chase  and Bank of America Corp are said to be looking to deposit nearly $30 billion in First Republic, Reuters reported, citing sources.

The news drove a stock rally and assuaged market concerns about financial contagion.

"Nothing else has gone calamitously wrong today and some specifics for particular institutions that appeared to be slipping away overnight and this morning got some word of helpful lifelines," said Jim Vogel, senior fixed income strategist, at FHN Financial in Memphis, Tennessee.

"That has stabilized Treasury buying and caused people to take some profits on positions from as recently as Tuesday."

U.S. Treasury yields initially showed little reaction to the European Central Bank's rate hike of 50 basis points (bps) to 3.50%, but eventually caught up with the rise in European government debt yields.

In afternoon trading, the yield on 10-year Treasury notes was up 8.3 bps at 3.577%.

The U.S. Treasury yield curve deepened its inversion, with the gap between the two-year and 10-year yield at -58.8 bps. This curve earlier in the week narrowed its inversion as traders started to price out some of the previously expected rate hikes this year.

U.S. two-year yields, which typically reflect interest rate expectations, climbed 18.8 bps to 4.164%.

U.S. jobless claims fell more than expected to a seasonally adjusted 192,000 in the week ended March 11. Economists polled by Reuters had forecast 205,000 claims for the latest week.

Housing starts bounced nearly 10% last month and building permits rose. However, the Philadelphia Fed manufacturing index plunged to -23.2.

Fed funds futures on Thursday priced in a 25-basis point hike at next week's Fed meeting in the wake of strong data overall, with the inflation focus outweighing financial sector concerns.

"The economic data is likely going to influence the Fed more than the regional bank situation," said Wade Guenther, a partner at asset manager Wilshire Phoenix in New York.

"The overall health of the economy seems to be very resilient and the employment numbers have been supportive of higher rates. So there are all these things that suggest higher rates are warranted and that's why I think the Fed may still raise rates next week," he added.

Read the article on Reuters