Treasury Yields Dip as Investors Consider Outlook for Bank Stocks, Monetary Policy

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U.S. Treasury yields were mixed Friday as investors weighed the outlook for stock markets and considered what the Federal Reserve's next policy moves might be.

The 10-year Treasury was at 3.423% after falling by 16 basis points. The yield on the 2-year Treasury was last down by almost 30 basis points to 3.833%.

Yields and prices move in opposite directions. One basis point is equivalent to 0.01%.

Investors digested the latest stock market developments, especially regarding bank stocks which have had a tumultuous week in the aftermath of Silicon Valley Bank's collapse. Fears about contagion across the banking system spread as a result, putting regional U.S. bank stocks under pressure.

On Thursday, major financial players said they would support First Republic, which was significantly affected by this week's market turmoil, with $30 billion to demonstrate their confidence in the banking system. But the stocks fell around 30% Friday as investors positioned ahead of the weekend.

Major international banks also had a volatile week after Credit Suisse's biggest backer said it could no longer support the Swiss bank financially. That prompted the Swiss National Bank to step in, from which Credit Suisse is due to borrow up to 50 billion Swiss Francs ($54 billion).

Many investors sought safety in historically safer assets such as government bonds throughout the week, causing yields to plummet at times. The developments also shifted expectations for the Federal Reserve's next interest rate decision at its upcoming meeting on March 21-22.

A 25 basis point rate hike rather than a 50 basis point rate hike is now expected. Many economists believe the Fed will aim to strike a balance between its ongoing battle with inflation and reinforcing the financial system's stability.

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