Banking Sector Instability Fuels Historic Treasury Rally

Swap rates and Treasury yields continue to plummet. Banking sector instability continued to roil markets today, as Treasurys continued their rally to cap off a historic stretch. The 2-year yield fell nearly 61bps from the open on Friday to 3.98%, which is over 100bps lower than recent highs. Futures are now calling for a ~56% chance of a 25bp hike at the upcoming FOMC meeting, a stark contrast from the 50bp hike that was viewed as probable just a few sessions ago. Elsewhere, equities were able to recoup many of their early session losses, with the S&P declining only .15% while NASDAQ rose .45%.

Signature Bank 3rd in string of recent bank failures. On Friday, Signature Bank (NASDAQ: SBNY) customers withdrew more than $10 billion in deposits. On Sunday, regulators announced that Signature was being taken over in the 3rd largest bank failure in U.S. history. According to board members, the collapse of SVB “spooked” customers, driving the deposit run. SBNY executives have expressed surprise, with board member Barney Frank saying, “we had no indication of problems until we got a deposit run late Friday, which was purely a contagion from SVB.” As markets assess the risk of contagion, some are taking some comfort in the US Treasury’s intervention to provide SVB depositors full access to their funds above the FDIC’s $250,000 insurance cap.

Day ahead. CPI at 8:30 AM will highlight the session, which is expected to decrease to 6% from 6.4% last month (YoY). Banking sector activity will continue to be at the forefront of market focus.