Bonds Surge, US Futures Pare Gains on SVB Fallout: Market Wrap

Bond markets surged and US equity futures pared gains as the collapse of Silicon Valley Bank continued to reverberate through trading desks.

(Bloomberg) — Bond markets surged and US equity futures pared gains as the collapse of Silicon Valley Bank continued to reverberate through trading desks.

Contracts on the S&P 500 initially rallied early on Monday as investors dialed back rate-hike bets, but gave up some those gains amid worries about the health of the banking and tech sectors. First Republic Bank shares slumped more than 60% in premarket trading.

Investors sought the safety of bonds. Treasury two-year yields dropped as much as 21 basis points to 4.38%, heading for their steepest three-day decline since Black Monday of October 1987. The 10-year yield headed for a one-month low and the dollar extended a decline against major peers.

The Stoxx Europe 600 index fell more than 1.5%, led by banks and insurers. 

The sudden closure of New York’s Signature Bank by state regulators Sunday emphasized the urgency of US efforts to backstop the nation’s banking system. Treasury Secretary Janet Yellen said her office would protect “all depositors” at SVB. The government actions will also include a new lending program that Federal Reserve officials said would be big enough to protect uninsured deposits in the wider US banking sector.

The risk of a banking crisis underscored the tension between the Federal Reserve’s efforts to cool the economy and tame inflation with burgeoning concerns that 4.5 percentage points of rate hikes in the space of a year will spark a recession and a rout in riskier assets. Economists at Goldman Sachs Group Inc. no longer expect an increase from the Fed at its March meeting given stresses in the banking system.

“Tightening monetary cycles often end abruptly when ‘something breaks’ and a financial crisis is triggered,” Ed Yardeni, the founder of Yardeni Research, said in a note. “If the Silicon Valley Bank run is that something, it could mean tightening ends sooner and bond yields have peaked.”

A gauge of Asian stocks eked out a small rise, held back by losses in Japanese shares, with financials being the biggest drag on the benchmark Topix gauge. The index has been under pressure also thanks to strength in the yen.

Monday’s moves in markets come after risk assets got pummeled last week, with the US stock benchmark suffering its worst week since September. Wall Street’s so-called “fear gauge” spiked, with the Cboe Volatility Index hitting the highest this year. 

Anxiety is also running high ahead of this week’s consumer price index report, especially after Fed Chair Jerome Powell recently emphasized that a move to a faster pace of tightening would be based on the “totality of the data.”

“From the Fed’s point of view, there are additional dangers that need to be reviewed, which will take some time,” Carol Pepper of Pepper International said on Bloomberg Television. “So I’m hoping that this will help them to have a good reason to pause because frankly creating financial stability is the number one job at the Fed.” 

Elsewhere in markets, oil fluctuated while gold rose on its allure as a haven. Bitcoin climbed, reflecting the relief among investors. 

Key events this week:

  • US inflation, Tuesday
  • China retail sales, industrial production, medium-term lending, surveyed jobless rate, Wednesday
  • Eurozone industrial production, Wednesday
  • US business inventories, retail sales, PPI, empire manufacturing, Wednesday
  • Eurozone rate decision, Thursday
  • US housing starts, initial jobless claims, Thursday
  • Janet Yellen appears before the Senate Finance Committee, Thursday
  • US University of Michigan consumer sentiment, industrial production, Conference Board leading index, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 1.8% as of 9:03 a.m. London time
  • S&P 500 futures rose 0.5%
  • Nasdaq 100 futures rose 0.6%
  • Futures on the Dow Jones Industrial Average rose 0.2%
  • The MSCI Asia Pacific Index rose 0.3%
  • The MSCI Emerging Markets Index rose 0.8%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.6%
  • The euro rose 0.5% to $1.0697
  • The Japanese yen rose 0.9% to 133.84 per dollar
  • The offshore yuan rose 0.6% to 6.8971 per dollar
  • The British pound rose 0.6% to $1.2097

Cryptocurrencies

  • Bitcoin rose 3.6% to $22,265.1
  • Ether rose 2.3% to $1,592.52

Bonds

  • The yield on 10-year Treasuries declined 10 basis points to 3.60%
  • Germany’s 10-year yield declined 19 basis points to 2.32%
  • Britain’s 10-year yield declined 16 basis points to 3.48%

Commodities

  • Brent crude fell 0.1% to $82.67 a barrel
  • Spot gold rose 1% to $1,886.06 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Vildana Hajric, Isabelle Lee and Akshay Chinchalkar.

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