Daily Market Color

Bank Troubles Fuel Risk-off Session Ahead of Fed Hike Decision

Bonds rally ahead of Fed hike decision tomorrow. Swap rates and Treasury yields plummeted today after PacWest and Western Alliance became the latest banks to fuel concern surrounding the health of the banking sector. The 2-year yield dropped ~18bps to 3.96% while the 10-year yield fell over 14bps to 3.42%. Futures still suggest an 85% chance of a 25bp hike at tomorrow’s FOMC meeting, despite the growing concern and decline in the 2-year yield. Equities sold-off due to the banking headlines, the S&P 500 dropping 1.16% while the NASDAQ Composite fell 1.08%

More regional bank troubles following First Republic failure. After the second-largest US Bank failure this weekend, PacWest Bancorp and Western Alliance led sell-offs in regional banks today. Trading of both stocks triggered volatility halts throughout the day, with PacWest stock falling 28% to a record low and Western Alliance stock falling 15%. In addition, Charles Schwab Corp. fell 3.3%, and Comerica Inc. and Zions Bancorp each fell 10% on the day. Following Jamie Dimon’s comments yesterday that the current banking crisis is nearing an end, Wells Fargo analyst Mike Mayo said, “The resolution of First Republic helps to ease concerns but not eliminate them…a triple dose of negative sentiment is impacting the regionals: commercial real estate, diversification and regulation.”

Day ahead. The Fed will announce their rate hike decision at 2 PM and follow with a press conference shortly thereafter. PMI and mortgage data will lead the session in the morning.

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