U.S. Bond Yields Post Biggest One-Day Drop Since Financial Crisis as Investors Seek Safety

Fear of potential financial contagion from the collapse of two large regional banks has investors scurrying to protect their assets.

U.S. bond yields had their biggest one-day decline since the 2008 global financial crisis on Monday. Two-year Treasury notes had their biggest three-day decline since the 1987 stock market crash.

Gold prices also surged as investors flocked sought safety in the wake of the failures of Silicon Valley Bank and New York's Signature Bank.

The U.S. government announced emergency measures Sunday evening aimed at protecting the two banks' depositors and raising odds that the Federal Reserve would halt its year-long string of interest rate increases at its policy meeting next week.

The yield on the benchmark 10-year U.S. Treasury yield fell as low as 3.42%, the lowest in six weeks and down more than a half percentage point from Thursday, a day before SVB collapsed, according to TradingView data. The 2-year U.S. Treasury yield fell by a similar degree to 4.02%.

As some investors fled to bonds -- bond prices rise as yields fall -- others bought gold, pushing prices for the precious metal up as much as 2.5% to a six-week high. Silver prices rose even higher, gaining as much as 6.8%.

Fed Hopes Help Stocks Stabilize

Even so, the stock market, which plunged last week, stabilized after falling in early trading. The S&P 500 Index, down 4.5% last week, dropped again early Monday by as much as 1.4% before rebounding to gain of 0.7% by 11:15 a.m. EDT.

Prospects the Fed may halt its rate hikes next week likely fed the equity market rebound. But Greg Valliere, a policy analyst with AGF Investments, warned investors to guard their hopes.

"The good news is that this collapse was addressed immediately, with -- hopefully -- minimum contagion," Valliere wrote in a policy report. "The bad news is that this crisis probably won't dissuade the Fed from more rate hikes. A 50 basis point move later this month seems unlikely, but a quarter-point hike is still on the table."

Much will depend, Valliere noted, on the monthly U.S. Producer and Consumer Price Index reports released this week. Even prior to those, though, Goldman Sachs said Monday it expects the Fed won't raise rate next week.

Regional Bank Stocks, ETFs Get Slammed

As stocks stabilized, other economically sensitive markets remained skittish. U.S. crude oil prices for April delivery, for instance, fell as much as 6% in early trading to a three-month low of $72.30 per barrel.

Heavy selling pressure, meanwhile, persisted on regional bank stocks. Shares of First Republic Bank (FRC), another institution catering to Silicon Valley depositors, fell as much as 79%, leading to a trading halt for the bank's stock. Shares of numerous other regional banks suffered double-digit percentage losses.

Likewise, investment funds focused on bank stocks encountered massive redemptions. Invesco KBW Bank ETF, SPDR S&P Bank ETF and SPDR S&P Regional Banking ETF, each with $1.5 to $2.5 billion in assets, dropped as much as 18% in early trading before trimming losses to 5% to 10% by midday.