Bond Yields Crash on US Bank Worries, USD Buyers Abandon Positions

Around this time last year, the banks in the US were starting to raise concerns, which eventually led to a crisis by March, when numerous banks declared bankruptcy. The situation eventually improved after intervention by the FED, but now we are starting to see some similar signs, which have sent US Treasury yields crashing lower, pulling the USD down as well today.

Will Last Year’s Banking Crisis Repeat in 2024?

Regional banks such as Silicon Valley Bank, Signature Bank, First Republic Bank, and Silvergate Bank, failed which sparked fears of a financial crisis, similar to the one we witnessed in 2008-09. Other regional banks survived the crisis, after the FED implemented a scheme to assist them, however, but they are encouraging banks to opt for the discount option instead.

Now the worries are back, starting with The New York Community Bancorp which slashed its dividend early this week. They addressed this to office real estate difficulties with banks having significant exposure to commercial real estate, which has been harmed by the work-from-home shift. This has resulted in defaults which will likely increase. The KRE regional banking index has lost around 6% today, and is more than 10% higher so far this week.

US Treasury Yields Collapse, Pulling the USD Down

US Treasuries are very sensitive to financial crises, and the demand for them is surging, which means that the yields are falling down fast, since the higher the demand from buyers, the less the FED is willing to pay for interest. Yields of the 10-year bonds were on a bullish trend in January, after declining from above 5% since October.

10-year yields gained above 0.50% until early this week, however, buyers couldn’t push too high above moving averages on the daily chart. This week the jitters started coming back as the signs of another banking sector crisis showed up, which reversed bond yields back down, wiping out most of the gains made last month.

The USD is feeling the pain as well since bond yields have been driving the price action in the Buck lately. In the last few days, the USD was resisting the tumble in Treasury yields, as traders were waiting for the FOMC meeting which took place yesterday. But today the USD is catching up and has lost around 100 pips in a fast bearish reversal. However, the decline in both assets has stopped now, so let’s see how this will evolve.