---
title: "Wild swings rock US bond market after bank meltdowns, crisis at Credit Suisse"
description: "Pockets of the world’s deepest bond market are starting to buckle under soaring trading volumes and wild swings as bank meltdowns compel traders to slash rate hike bets."
type: "NewsArticle"
publisher: "Daily Maverick"
site: "https://www.dailymaverick.co.za"
section: "International Finance"
author: "Bloomberg"
author_url: "https://www.dailymaverick.co.za/author/bloomberg/"
canonical_url: "https://www.dailymaverick.co.za/article/2023-03-16-wild-swings-rock-us-bond-market-after-bank-meltdowns-crisis-at-credit-suisse/"
published: "2023-03-16T05:49:51"
lang: "en-ZA"
word_count: 474
---

# Wild swings rock US bond market after bank meltdowns, crisis at Credit Suisse

> Pockets of the world’s deepest bond market are starting to buckle under soaring trading volumes and wild swings as bank meltdowns compel traders to slash rate hike bets.

By Bloomberg · Published 16 March 2023, 07:49 SAST

## Key points
- The US interest-rate market saw a brief trading halt as futures contracts soared, adding to signs of tension in dollar funding markets and diminished liquidity in the cash Treasury market. Investors are now ramping up bets that the Federal Reserve's next move will be to cut interest rates, with circuit breakers triggered in key futures contracts due to a dramatic 50 basis-point move.
- Trading was halted in a key corner of the US interest-rate market on Wednesday as futures contracts soared.
- Signs of tension are building within US dollar funding markets, with liquidity diminishing in parts of the cash Treasury market.
- An unusual two-minute trading pause shocked the market for key futures contracts used to wager on the Fed’s future rate moves.
- Market depth in Treasuries has become a recurring theme in periods of global financial volatility.

## Content

Trading was briefly halted in a key corner of the US interest-rate market on Wednesday as futures contracts soared through circuit breakers. Signs of tension are building within US [dollar funding](https://www.bloomberg.com/news/articles/2023-03-15/dash-for-cash-by-banks-fuels-signs-of-tension-in-funding-markets) markets. Liquidity has diminished in parts of the cash Treasury market after the collapse of three regional US lenders and amid rising concern about Credit Suisse Group AG’s financial health.

All together, it’s an indication of rising risk for US rates traders, who are once again ramping up bets that the Federal Reserve’s next move will be to cut interest rates.

An unusual two-minute trading pause shocked the market for key futures contracts used to wager on the Fed’s future rate moves earlier on Wednesday. The halts, which started around 9am in New York, added to mayhem across front-end rates, where the yield on two-year Treasuries tumbled as much as 54 basis points to 3.71%, the lowest level since September.

Stress was also evident in [dollar funding markets](https://www.bloomberg.com/news/articles/2023-03-15/dash-for-cash-by-banks-fuels-signs-of-tension-in-funding-markets) as banking fears pushed lenders to shore up their own cash buffers in the wake of meltdowns at Silvergate Capital, Silicon Valley Bank and Signature Bank.

In cash Treasuries, spreads between bids and offers increased across the curve, a sign of thinning market depth and diminishing liquidity as bond-market volatility soars.

“Liquidity is significantly compromised, following extremely volatile conditions, and indeed market depth remains at the weakest levels since late-March 2020,” JPMorgan Chase & Co strategists Jay Barry and Jason Hunter wrote in note to clients on Tuesday.

Market depth in Treasuries has become a recurring theme in periods of global financial volatility, with some bond experts [concerned](https://www.bloomberg.com/news/articles/2022-10-06/us-treasuries-liquidity-problem-exposes-fed-to-biggest-nightmare) about the debt’s haven reliability.

Nonetheless, Treasury market functioning isn’t being compromised to the same extent it was in March 2020, as the lack of liquidity this time around is due to uncertainty over the Fed’s monetary policy path, JPMorgan’s Barry and Hunter wrote in the same note.

#### Futures halted

Wednesday’s unexpected trading halts impacted June, July and August futures linked to the Secured Overnight Financing Rate (SOFR), as well as Fed Funds futures for August and September.

The pause came as investors began pricing in a [drop of more than 100 basis points](https://www.bloomberg.com/news/articles/2023-03-15/fed-traders-price-100bp-of-rate-cuts-from-a-4-8-may-policy-peak) in the central bank’s policy rate by year-end.

A spokesperson for CME, which operates the Chicago Mercantile Exchange where the futures trade, confirmed the dynamic circuit-breaker events and said the system worked as designed.

Circuit-breaker events are uncommon in rates markets, where price action can be exacerbated in times when liquidity tends to be thinner and gaps can appear between trader bids and offers.

According to [Chapter 460](https://www.cmegroup.com/content/dam/cmegroup/rulebook/CME/IV/400/460.pdf) in the CME’s rulebook, trading is halted in three-month SOFR futures at a 50 basis-point move. The June 2023 contract traded around 95.74 as of 2pm in New York. It triggered the brief trading halt earlier when it hit a session high at 96.11. **BM/DM**