The yield on the two-year Treasury note plunged, on course for its biggest one-day slump in decades, while stocks rebounded from last week’s rout as the collapse of Silicon Valley Bank reverberated across trading desks.
(Bloomberg) — The yield on the two-year Treasury note plunged, on course for its biggest one-day slump in decades, while stocks rebounded from last week’s rout as the collapse of Silicon Valley Bank reverberated across trading desks.
The policy-sensitive two-year plunged as much as 60 basis points to less than 4% as traders bet the collapse of SVB and two other lenders will compel the Federal Reserve to halt rate hikes. The 10-year yield dropped more than 28 basis points to a six-week low, while the dollar erased its gains for the year.
The S&P 500 gained, reversing an early drop amid a rout in bank shares while the policy-sensitive Nasdaq climbed the most in over a week. The fallout from SVB’s collapse prompted President Joe Biden to promise stronger regulation of US lenders, while reassuring depositors that their money is safe.
The turmoil has caused a rapid repricing in markets for where the Fed will take policy. Swaps traders are now pricing a less than one-in-two chance the Fed will hike by another quarter point this cycle. Goldman Sachs Group Inc. economists as well as money managers at the world’s largest actively managed bond fund from Pacific Investment Management Co. are saying the Fed could take a breather on the policy rate following the collapse of SVB. Expectations had weighed a hike of as much as 50 basis points after Chair Jerome Powell addressed lawmakers Tuesday.
First Republic Bank slumped 67% before being halted amid growing worries about the state of US regional banks. The KBW Bank Index is on track for its biggest one-day drop since the start of the Covid-19 pandemic.
“Problem is that nobody wants to be the last one in a room turning off the light. In other words, as soon as there is a problem in one bank, fear is real. Immediately everybody starts to say, ‘wait a minute, should I also have my deposits at bank ABCD etc.?,’” Mayra Rodriguez Valladares, managing principal at MRV Associates said on Bloomberg TV.
“Bond yields go up, which signal to the rest of the market that there is an increasing probability of default and loss severity. Even if the bank is well capitalized,” she added.
Treasury Secretary Janet Yellen said her office would protect “all depositors” at SVB. The government actions will also include a new lending program that Fed officials said would be big enough to protect uninsured deposits in the wider US banking sector. Still, the sudden closure of New York’s Signature Bank by state regulators Sunday underscored the urgency of stabilizing the financial system.
“The Fed has to be off the table for now. They pushed on rates until something cracked, well guess what? Something cracked,” said Peter Tchir, head of macro strategy at Academy Securities, on Bloomberg TV.
“To see QT stop would not be surprising, and maybe something to support the market. I think we’re back in crisis mode, and remember, to me, bank runs are way way way more important than inflation, so that’s what they’ve got to be arresting,” he said.
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 rising above 30 for the first time since October. Anxiety is also running high ahead of Tuesday’s consumer price index report.
Elsewhere in markets, oil dipped while gold rose on its allure as a haven.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.8% as of 11:33 a.m. New York time
- The Nasdaq 100 rose 1.6%
- The Dow Jones Industrial Average rose 0.8%
- The Stoxx Europe 600 fell 2%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.8%
- The euro rose 0.7% to $1.0720
- The British pound rose 1.1% to $1.2164
- The Japanese yen rose 1.6% to 132.92 per dollar
Cryptocurrencies
- Bitcoin rose 13% to $24,329.51
- Ether rose 8.4% to $1,688.25
Bonds
- The yield on 10-year Treasuries declined 21 basis points to 3.49%
- Germany’s 10-year yield declined 26 basis points to 2.24%
- Britain’s 10-year yield declined 29 basis points to 3.35%
Commodities
- West Texas Intermediate crude fell 0.9% to $75.97 a barrel
- Gold futures rose 2.6% to $1,916.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Robert Brand, Allegra Catelli and Benjamin Purvis.
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