Investors sought the safety of bonds for a second day as jitters over a rout in bank stocks hit risk sentiment and traders speculated that rate-hike bets had gone too far too fast.
Two-year Treasury yields dropped 12 basis points to 4.75%. The rate has tumbled 32 basis points since Wednesday’s close to head for its biggest two-day slide since June. Australian and New Zealand bonds also rallied on Friday, with three-year yields in Australia down 12 basis points.
US short-dated bonds started surging on Thursday as hints of labor-market weakness and a flight to safety set off by a rout in financial company shares sent investors piling back in to the same government securities they spent much of the first half of this week selling. Yields on two-year US notes soared above 5% for the first time since 2007 after Fed Chair Jerome Powell this week indicated the central bank could decide to raise its benchmark rate by half a point, re-accelerating from the quarter-point move it made Feb. 1.
Rates traders scaled back bets on a half-point hike this month to about an even chance after data showed that the number of Americans filing for unemployment benefits unexpectedly swelled to the highest this year. Swaps contracts signaled earlier on Thursday about a 75% chance the Fed would increase its benchmark rate to between 5% and 5.25%, from a 4.5%-4.75% range now.
