Lingering anxiety that regulators and central banks have not yet contained the shock to the banking sector lifted demand for safe-haven bonds.
Investors are unconvinced by the reassurances of policymakers about global financial stability, and speculate central banks will be unable to raise interest rates as high as they would like to restore inflation to target.
The failure of US regional banks Silicon Valley Bank and Signature Bank early this month triggered fears of banking contagion.Market sentiment turned south late last week after Deutsche Bank shares tumbled as much as 15 per cent in European trading and its credit default swaps, which reflect the cost of insuring debt against the risk of non-payment, shot to their highest in more than four years.
US bond yields pared some losses, but remained under pressure. Two-year yields eased to 3.78 per cent, having dropped as far as 3.55 per cent on Friday, the lowest level since September. Benchmark 10-year yields recoiled to 3.38 per cent, from a seven-month low of 3.28 per cent. St Louis Fed president James Bullard also said late last week that the US central bank would likely need to raise interest rates higher than expected, and Atlanta Fed president Raphael Bostic reiterated that the Fed must remain focused on getting inflation lower.
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