Without a doubt, the Fed’s rate hike at the March FOMC meeting certainly received considerable debate beforehand. Indeed, with the impact of the Silicon Valley Bank (SVB) and Credit Suisse-related news reverberating around the globe, market dislocations and uncertainty were on full display. However, as we all know now, Powell & Co. raised the Fed Funds target range 25 bps to 4.75%–5% as “inflation-fighting” ultimately won out among the voting members.

Within the Fed’s accompanying policy statement and Powell presser, the recent turmoil in the banking sector by no means went unnoticed. In fact, specific references were made about tighter credit conditions and the potential for the negative effects that go with it. In addition, some market commentators were discussing how these expected tighter credit conditions actually are akin to a Fed rate hike or two.

However, it is important to remember that things do not happen in a vacuum. So, yes, the Fed Funds target range is now 25 bps higher than where it was in a pre-SVB world, but open market interest rates are largely visibly lower than their peak readings, whether those peaks occurred a few short weeks ago or back in the fall.

Let’s look at the Treasury (UST) market as a case in point, as yields all along the two-to-thirty-year portion of the curve are dramatically lower. Perhaps the most noteworthy decline is in the UST 2-Year yield. After topping out at as high as 5.07% on March 8, the yield has plummeted by 130 bps in the last few weeks, down to 3.77% as of this writing. For those keeping track, the 2-Year yield is now about 125 bps below the top end of the new Fed Funds target range. In other words, it’s as if the Fed implemented five quarter-point rate cuts! Not to be outdone, let’s look at the widely followed UST 10-Year note. The yield here reached its “official” peak of about 4.25% in October but crossed over the 4% threshold again as recently as March 2 (4.06%). As we write this commentary, the 10-Year yield trades at 3.37%, a drop of almost 70 bps this month alone.

These rate declines are important because other borrowing rates oftentimes are set to Treasury yields. Think of mortgage rates. According to the Mortgage Bankers Association, the conventional 30-year fixed-rate mortgage stood at 6.48% as of March 17, or roughly 70 bps below its October peak of 7.16%. What about the U.S. corporate bond markets? As would be expected, credit spreads have widened out, but interestingly, the yield to worst for investment-grade credit has actually declined by 50 bps over the last two weeks. In the high-yield market, the yield to worst has risen a modest 14 bps during this same timeframe, but it is down 100 bps from its October high watermark.

Unfortunately, the markets are presently in a state of heightened anxiety. As a result, headline risks and the potential for outsized market reactions remain a part of the current investment landscape. But, as we tried to point out in this week’s commentary, there’s more than just one side of the story. That being said, we’re betting investors would love to return to the good old days of debating whether inflation will remain “sticky” and/or the U.S. economy is headed for a “no landing/soft landing/hard landing” scenario.