Banking Sector Health Remains in the Spotlight

Rates reverse early morning decline, sell-off throughout the afternoon. Swap rates and Treasury yields rose across a steepening curve today, with the 10-year yield climbing ~5bps to 3.45% after falling as low as 3.37% in the early stages of the session. The move came amid mounting fears surrounding the banking sector, which continued to drag bank shares lower, the KBW Bank Index falling over 1% on the day. Elsewhere, durable goods orders came in well above the forecast of 0.7% at 3.2%, which contributed to the rates rise in the morning.

First Republic captures headlines today amid stock price volatility, capital raising efforts. First Republic Corporation (NYSE: FRC) was the dominant story again today in the banking sector. Trading of the bank’s stock was suspended multiple times due to volatility, and the stock price reached an all-time low earlier this morning. As the bank evaluates its strategic options, a capital raise is now on the table. The bank’s advisors have noted that there are potential buyers for a share issuance, however this is contingent upon larger banks agreeing to buy bonds from FRC at a premium to fair market value. Any buyers of those bonds would suffer immediate MTM losses, but proponents for the plan argue that equity gains could offset this loss in the longer term. Generally, regulators favor private intervention as opposed to an FDIC takeover and a positive sign in that direction may be the $30 billion deposit support package for FRC from large banks earlier this year which indicated confidence in the institution’s longer-term prospects. Regulators also noted that they do not view the current developments at FRC as a systemic risk to the banking sector. 

Day ahead. GDP figures will lead the day at 8:30 AM alongside initial jobless claims. Pending home sales data will be released shortly thereafter, with multiple bill and note auctions set to follow in the early afternoon.