Daily Market Color

First Republic Bank News Fuels Risk-off Session

Rates, equities plummet after First Republic Bank headlines. Swap rates, Treasury yields, and equities all plummeted today after First Republic Bank announced underwhelming earnings and a potential asset sale. The rate sensitive 2-year yield dropped over 13bps on the day to 3.95%, the first time the 2-year yield has closed below 4% since nearly 2 weeks ago. However, futures still suggest a near 80% probability of a 25bp hike at the upcoming FOMC meeting. Elsewhere, the NASDAQ Composite fell nearly 2% today while the S&P 500 fell over 1.50%.

First Republic Bank mulls large asset sale. First Republic Bank is considering selling $50bn – $100bn of assets as it aims to better match its assets and liabilities and manage its large portfolio of fixed-rate, single-family mortgages. The bank will also refocus on originating conforming loans that can more easily be sold on the secondary market, a departure from its strategy of providing interest-only jumbo mortgages, which helped build its large wealth management business. Chief Financial Officer Neal Holland said in a statement, “We are working to restructure our balance sheet.”

Day ahead. Durable goods orders, expected to increase significantly from last month’s level of -1.0%, will be released at 8:30 AM. Wholesale and retail inventory figures will also come out at 8:30 AM, which follows mortgage data at 7 AM. 

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