Markets Risk-On as FDIC Mulls Path Forward

Rates mixed, VIX falls to lowest level in 3 weeks. Markets were risk-on today, with equities rising significantly and the VIX closing at its lowest level in 3 weeks. Treasury yields stayed near neutral, with the 2-year yield falling as low as 4.00% early in the session before ending at 4.10%, a 2bp increase from the open. The 10-year yield followed a similar path on the day before ending 1bp lower at 3.56%. The 2 and 10-year yields remain significantly lower than they were at the beginning of the month, with the 2-year yield down ~74bps and the 10-year down ~36bps from the end of February.

FDIC considers leaning on big banks to cover bank failure costs. The FDIC is facing ~$23B in costs relating to recent bank failures, and they are now considering dumping most of the onus on larger U.S. banks. Officials are looking to limit the strain on community and regional lenders by heaping a greater-than-usual burden on larger U.S. banks, who recognized numerous benefits from the SVB and Signature Bank fallouts, including an influx of cheap deposits from smaller banks across the nation. When asked about the strain that will be put on community banks, FDIC Chairman Martin Gruenberg stressed that “We’re going to be keenly sensitive to the impact… we have the discretion to tailor that assessment to the institutions that most directly benefited.”

Day ahead. Fed hawks Thomas Barkin and Christopher Waller will make public comments at 12:45 PM ET. Data will be plentiful, with GDP, initial jobless claims, and PCE figures set for release at 8:30 AM.