(Bloomberg) -- US stock climbed as traders wager the worst of the banking sector turmoil has passed, while Treasury yields climbed after the latest inflation reading cemented bets for a Federal Reserve rate hike next week.
The S&P 500 advanced over 1.5%, with regional bank shares bouncing back from two days of frantic selling. The two-year Treasury yield climbed — following a three-day swoon that was the biggest in decades amid the tumult — after data showed inflation remained elevated in February. Swaps traders now expect the Fed to lift rates by a quarter percentage point. Odds of an increase had slipped to nearly 50-50 on Monday. The dollar was little changed versus major peers.
US consumer prices rose 0.4% in February, meeting economists’ forecast. The closely watched core CPI number — which excludes food and energy — increased 0.5%, just ahead of the median estimate of 0.4%.
The two-year note — the most sensitive to interest rates — climbed over 30 basis points to 4.33%. Plunging rates gripped Wall Street’s attention yesterday, when the yield dropped more than a half-percentage point in the biggest move since the 1980s.
Treasuries have been whipsawed in recent days — with a measure of volatility climbing to the highest since 2009 — and banking shares plunged as the collapse of Silicon Valley Bank and two other US lenders prompted wagers the Federal Reserve will pause its hiking cycle and even cut interest rates to stabilize the financial system.
Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, expects that the data will keep the Fed on track to raise rates 25 basis points next week.
“Given the bank troubles, this report isn’t bad enough to put 50 bps back on the table, but if the Fed wants to maintain credibility on inflation, then this report says they have to hike again next week and not signal they are done,” Essaye wrote.
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