10-year yields post steepest fall since March as recession worries spike

NEW YORK, April 25 (Reuters) – Benchmark 10-year Treasury yields fell by their largest amount since March on Tuesday while short-term yields climbed as investors balanced rising concerns about the regional banking sector and the possibility of an imminent recession with worries about the US debt ceiling.

Longer-duration Treasury yields fell across the board as shares of First Republic Bank (FRC) dropped more than 35% after the company reported a more than USD 100 billion plunge in deposits in the first quarter, increasing fears that Wall Street has not seen the last of the regional banking crisis.

Consumer confidence, meanwhile, unexpectedly fell to a nine-month low in April, increasing market concerns about a recession.

“As the data become softer, it’s bringing us closer to the most forecasted recession in our lives,” said Jim Schaeffer, global head of leveraged finance for Aegon Asset Management. “Once the market is confident about when the Fed is going to pause and how long they will keep rates at the same level, it will be less concerned about the debt ceiling.”

The Federal Reserve is widely expected to raise benchmark interest rates by another 25 basis points at its policy meeting next week. Markets are pricing in a more than 50% chance the central bank has to cut rates by the end of this year, according to CME’s FedWatch Tool.

The yield of 3-month Treasuries, which could be among the securities most affected by a standoff over the US debt limit, jumped 7 basis points to 5.13%, slightly below the 16-year high reached earlier this month.

The yield on 10-year Treasury notes was down 11.7 basis points to 3.398%, while the yield on the 30-year Treasury bond was down 7.7 basis points to 3.652%.

Bond yields move in the opposite direction of prices.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -56.5 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 18.3 basis points at 3.961%.

April 25 Tuesday 2:51PM New York / 1851 GMT

(Reporting by David Randall; Editing by Tomasz Janowski, Jonathan Oatis and Nick Zieminski)