U.S. Treasury yields rose on Friday as investors’ fears about a potential credit crisis in the banking sector eased. A key takeaway from the day was that market sentiment is shifting, with investors viewing recent loan losses as a manageable issue rather than the start of a broader systemic crisis.
Key Market Movements
By 9:25 a.m. ET, the main Treasury yields had all ticked up:
- 10-year Treasury yield: Rose 2 basis points (bps) to 3.997%.
- 2-year Treasury note: Rose 2 bps to 3.449%.
- 30-year bond yield: Ticked up nearly 2 bps to 4.6%.
Note: A basis point equals $0.01\%$. The price of a bond and its yield move in opposite directions. When yields rise, it means prices have fallen.
Why the Fears Eased
The rise in yields signals a move away from safe-haven assets like Treasuries, which traders had rushed into on Thursday. The fear was sparked by disclosures of bad lending practices:
- Zions Bancorporation disclosed a $\$50$ million loss on two commercial loans.
- Western Alliance reported that a borrower had committed fraud.
However, on Friday, investors digested the news and the sentiment improved, suggesting these were isolated incidents and not indicators of a wider crisis. This feeling was supported by regional bank earnings, with Fifth Third Bancorp reporting a jump in profit despite credit losses.
Other Factors Traders are Weighing
Investors’ focus isn’t solely on the banking sector. Several other developments are influencing market direction:
- Geopolitical Events: Traders are monitoring escalations in the U.S.-China trade war and unexpected talks between President Donald Trump and Russian President Vladimir Putin over the ongoing Ukraine War.
- Government Shutdown: The third week of the government shutdown is hindering markets by suspending the release of critical economic data, making it difficult for investors to gauge the health of the U.S. economy.
- Federal Reserve Guidance: With data scarce, investors are relying on alternative information, such as speeches from Federal Reserve governors. Investors are keenly anticipating St. Louis Fed President Alberto Musalem’s speech later Friday, hoping for indications that the central bank will cut rates at its meeting later this month.
