Treasuries Surge as Bank Stock Rout Rekindles Fed Rate-Cut Hopes

Treasury yields tumbled Thursday as a second day of declines for US financial stocks led traders to price in a more rapid pace of Federal Reserve interest-rate cuts.

The US five-year yield fell as much as 9 basis points to 3.75%, the lowest since June. At the same time, traders priced in a larger total amount of Fed interest-rate cuts this year. Swap contracts indicated a slightly increased possibility of a March start, a day after that wager suffered a setback when Fed Chair Jerome Powell said it was unlikely.

Bank shares extended a decline that was sparked Wednesday by a small New York bank reporting a surprise loss and cutting its dividend — fallout from US commercial property losses that are expected to deepen. For investors, it evokes the rout in US regional bank shares last March that also drove haven demand for Treasuries.

While the scope of the problem is uncertain, “it negatively impacts banking lending, the lifeblood of our economy,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “Investors are buying Treasuries first, ask questions later.”

Treasury 5 Year Yield Falls to Lowest Level Since June

Banks that had predicted cuts would begin in March were abandoned that call after Wednesday’s Fed policy meeting.