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Bonds are Rallying!

Bond investors are worried that high-profile problems at some regional banks, starting with Silicon Valley Bank’s collapse—could cause banks generally to further tighten lending standards.

That in turn could drag on U.S. growth, limiting the need for the Federal Reserve to further raise interest rates.

Tweet on Bonds

Tradeweb Chart

Labor market data over the past couple of days wasn’t strong enough to outweigh concerns about the banking sector. Once Friday’s jobs report was released and didn’t show obviously increasing inflation pressures, the bond rally picked up added momentum.

Unexpected and sharp moves can be self-reinforcing. Over the past two days, traders that were betting on lower bond prices have been forced to unwind their positions by buying Treasurys, some investors said.

Some investors noted that government bonds still face challenges.

“Broadly speaking, the U.S. economy is in good shape,” while inflation isn’t declining as quickly as central banks would like, said Andrzej Skiba, head of U.S. fixed income at BlueBay Asset Management.

Those factors “could bring back upward pressure on government bond yields,” he said, though he added that investors still need to see signs of stability in the banking sector.