After a surge earlier this week that took the yield on the two-year US Treasury up above 5% for the first time since 2007, concerns over the health of bank balance sheets have caused a sharp reversal lower. From a closing high of 5.07% on Wednesday, the yield on the two-year US Treasury has plummeted to 4.62% and is on pace for its largest two-day decline since September 2008.  Remember that?

A 45 basis point (bps) two-day decline in the two-year yield has been extremely uncommon over the last 46 years. Of the 79 prior occurrences, two-thirds occurred during recessions, and the only times that a move of this magnitude did not occur either within six months before or after a recession were during the crash of 1987 (10/19 and 10/20) as well as 10/13/89 when the leveraged buyout of United Airlines fell through, resulting in a collapse of the junk bond market.  As you can see from the New York Times headline the day after that 1989 plunge, just as investors are worrying today over whether we’re in for a repeat of the Financial Crisis, back then they were looking at ‘troubling similarities’ to the 1987 crash. The year that followed the October 1989 decline wasn’t a particularly positive period for equities, but a repeat of anything close to the 1987 crash never materialized. Click here to learn more about Bespoke’s premium stock market research service.

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