Stock price information displayed in the lobby of the Euronext NV stock exchange in Paris, France, on Wednesday, 14 December 2022. (Photo: Nathan Laine/Bloomberg) Treasury Secretary Janet Yellen said that her office would protect “all depositors” at the bank, whose demise Friday marked the biggest such event since 2008. 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 system.
Two-year Treasury yields slumped as much as 24 basis points amid bets that the Federal Reserve will scale back interest-rate hikes. Economists at Goldman Sachs Group no longer expect an increase from the Fed at its March meeting given stresses in the banking system.
A gauge of dollar strength declined by 0.8%, with the currencies of Australia, New Zealand and Norway all advancing at least 1% versus the greenback.
Japan’s benchmark 10-year yield slumped further below the ceiling of the central bank’s target trading band. Australian and New Zealand government bond yields tumbled as traders globally reassess the path of interest rate hikes and the economic cost the tightening cycle has taken already. The problems at SVB Financial Group’s bank were caused in large part by the fallout from higher US interest rates.
Japanese stocks led losses in Asia, with financials being the biggest drag on the benchmark Topix gauge. The gauge headed for its biggest two-day loss in a year as the yen continued to strengthen.
Meanwhile, shares in Hong Kong and mainland China rose amid positive signs for policy continuity, with China’s central bank governor governor Yi Gang and the finance and commerce ministers being kept in their posts. President Xi Jinping also pledged to pursue reasonable growth in economy, as well as self-reliance on technology, in his closing speech at the National People’s Congress.
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. Treasury two-year yields plummeted 28 basis points to 4.59%.
“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. We can’t say for sure that’s the case but can say the debacle should keep the tech sector mired in its rolling recession for longer.”
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.”
Yet for now the reassurances from US regulators over SVB are having the desired impact.
“This will bring confidence back to the markets. But 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 TV. “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. BM/DM