Rates Crash After SVB Collapse, Labor Market Data

Rates plummet after SVB collapse, early morning data. Swap rates and Treasury yields continued their freefall today, with continued concern surrounding SVB’s collapse forcing rates lower at the open. The Treasury rally continued after morning data revealed a higher than expected unemployment rate (3.6%) and easing wage pressures (4.6% YoY), which was enough to offset any hawkishness surrounding a nonfarm payrolls beat (311k). The 2-year yield fell over 28bps to 4.59% while the 10-year yield dropped ~20bps to 3.70%, a steep decline from their highs this week of 5.07% and 3.99%, respectively.

SVB receivership marks largest U.S. Bank failure since 2008. In quick succession, SVB went from considering a sale to being placed under the control of the newly formed Deposit Insurance National Bank (DINB) of Santa Clara. The bank’s failure puts liquidity risk front-and-center, following over a decade of benign conditions. The bank was uniquely exposed to startup depositors, who withdrew deposits due to a more difficult funding environment, which forced a $21 billion bond sale and a failed share issuance attempt that set off a mass-deposit run. As banks around the country closely examine this situation and their own liquidity risks, it is important to note SVB’s unique reliance on startup depositors and compare that to many regional and community banks that have high-quality relationship deposit bases distributed across various industries.

Week ahead. The Fed blackout period ahead of the March FOMC meeting commences tomorrow and will continue until the 23rd. Next week’s agenda will be highlighted by CPI on Tuesday, which is expected to decrease to 6.0% from 6.4% YoY. CPI will be followed by PPI and retail sales data on Wednesday.