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Asian equities extended declines Tuesday, led by weakness in financial stocks as the collapse of Silicon Valley Bank continued to reverberate across global markets.

A gauge of Asian shares tumbled about 2 percent and erased all of its gains for this year. 

Financial stocks were the biggest drag as investors weigh risks in the sector. The KBW Bank Index on Monday logged its biggest fall since the start of the Covid-19 pandemic, underscoring the dangers.

The two-year Treasury yield rebounded more than 15 basis points but remained markedly lower than levels late last week. It recorded the largest three-day retreat since Black Monday of October 1987 at the close of US trading.

Japan’s 10-year government bond yield fell below 0,25 percent, the Bank of Japan’s previous ceiling, amid bets that the US banking turmoil could slow the pace of global rate hikes and ease pressure on Japan to tighten. 

Yields on New Zealand’s two-year government bond tumbled more than 20 basis points, as did the rate on Australia’s three-year maturity. 

Japan’s five-year yield declined to the lowest since December.

A gauge of dollar strength edged higher after erasing its gains for the year on Monday amid a reassessment of the outlook for interest rates.

Swaps traders are now pricing a less than 60 percent chance the Federal Reserve will hike by another quarter percentage-point later this month.

“A policy mistake is hands down the biggest risk in the market,” Mary Manning, global portfolio manager for Alphinity Investment Management, said on Bloomberg Television. 

“Controlling inflation but also addressing the fact there is some instability in the banking system is difficult.” – Bloomberg