Soaring US Treasury and Gold Prices Amid SVB Crisis... Dollar Weakens

The sudden collapse of Silicon Valley Bank (SVB) in the United States has heightened investors' preference for safe-haven assets. While bank stocks, vulnerable to bank runs, took a direct hit, representative safe assets such as U.S. Treasury bonds and international gold prices surged simultaneously.

On the 13th (local time) in the New York bond market, the yield on the 2-year U.S. Treasury note, which is sensitive to monetary policy, fell by more than 60 basis points intraday to around 3.91%. This is the lowest level since September last year.

Last week, the 2-year yield had surpassed 5%, but due to the SVB incident, it dropped to the high 3% range in just three trading days. Economic media CNBC reported, "The 2-year yield fell by more than 1 percentage point over three trading days," adding, "This is the largest decline since Black Monday in October 1987." At that time, the bond market was also shaken as the S&P 500 index plummeted more than 20% in a single day.

Even considering the sharply heightened financial market anxiety caused by the SVB event, this is an unprecedented decline comparable to the shock of Black Monday. This drop in Treasury yields indicates a rise in bond prices, which are safe-haven assets. On the same day, the 10-year yield also fell more than 15 basis points to around 3.54%. The 10-year yield, which had exceeded 4% last September, briefly dropped to 3.41% intraday.

This decline in Treasury yields reflects increased concerns about financial risks following the SVB incident. Despite emergency measures by the U.S. federal government to protect depositors and the financial system, market caution persisted. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," jumped more than 10% intraday to surpass the 28 level, marking the highest point in the past five months.

As the preference for safe-haven assets spread, gold prices also soared. On the New York Mercantile Exchange, April delivery gold rose $49.30 per ounce (2.6%) from the previous session to $1,916.50 per ounce.

However, the dollar weakened as expectations for aggressive tightening by the Federal Reserve (Fed) eased due to this incident. The Dollar Index, which measures the value of the dollar against six major currencies, fell about 0.9% from the previous session to around 103.6.

According to the FedWatch tool from the Chicago Mercantile Exchange (CME), the federal funds (FF) futures market currently reflects a more than 64% probability that the Fed will opt for the usual 0.25 percentage point rate hike at the March Federal Open Market Committee (FOMC) meeting. The possibility of no rate hike rose sharply from 0% the previous day to around 35% on this day. Meanwhile, the chance of a big rate hike (big step) dropped to 0%. Phil Flynn, an analyst at Price Group, said, "The Fed will find it more difficult to raise rates aggressively, which will lead to a weaker dollar."