Key Events in the Stock Market
Traders Bet on No More Fed Rate Hikes, US Two-Year Yields Fall
- Currently, swaps indicate that the probability of the Federal Reserve conducting another quarter-point rate hike in this cycle is less than one to two. The yield on two-year Treasury notes, the most sensitive to policy changes, fell 60 basis points to less than 3.99%, the lowest since October.
- The three-month London interbank offered rate (Libor) for the dollar, a key benchmark, fell 27 basis points, the most since March 2020. The dollar’s exchange rate also fell.
Credit Risks Rise as Investors Fear Bankruptcies Threaten Markets
- Credit risk indicators lit up in red on Monday as investors feared contagion risk in corporate debt markets after Silicon Valley Bank (SVB) and New York’s Signature Bank collapsed within 72 hours.
- The investment-grade U.S. corporate credit default swap (CDS) index rose to 90.2 basis points, the highest since November, after the U.S. actions to guarantee deposits at technology-focused lender SVB failed to reassure investors that other banks remain financially sound.
An Analysis of Key Stock Market Events
Traders Making Bets Against Further Fed Rate Hikes As US Two-Year Yields Take a Hit
The swaps market currently suggests that the likelihood of the Federal Reserve conducting another quarter-point rate hike in this cycle is less than one to two. In line with this, the yield on two-year Treasury notes, which are widely regarded as the most sensitive to policy changes, took a tumble, falling 60 basis points to less than 3.99%. This marks its lowest point since October.
Adding to the volatile market, the three-month London interbank offered rate (Libor) for the dollar, a key benchmark, fell 27 basis points, representing the most significant decline seen since March 2020. Concurrently, the exchange rate of the dollar also fell.
Investor Concerns Over Credit Risks Mount as Bankruptcies Threaten Market Stability
In what has been a tumultuous week for financial markets, credit risk indicators lit up in red on Monday as investors worried about the potential contagion risk in corporate debt markets after the Silicon Valley Bank (SVB) and New York’s Signature Bank collapsed within 72 hours.
The U.S. investment-grade corporate credit default swap (CDS) index rose to 90.2 basis points, the highest recorded since November. This follows the United States’ failed attempts to guarantee deposits at technology-focused lender SVB, which had failed to reassure investors that other banks remained financially sound.
First Republic’s Share Plunge Sparks Fear of Contagion, Leading to an Overall Drop in U.S. Regional Banks
In what has been a particularly distressing week for investors, the shares of U.S. regional banks fell on Monday, primarily due to the sharp losses seen in First Republic Bank (refer to the chart below). This news comes despite recent reports of new financing, which have failed to dispel concerns of possible contagion, given the collapse of the SVB Financial Group and Signature Bank.
As per CNBC, San Francisco-based First Republic was able to meet withdrawal requirements, thanks to additional financing from JPMorgan Chase & Co, according to the Executive Chairman of the mid-cap bank’sboard of directors, Jim Herbert.
