Volatility Continues Following ECB Hike, First Republic Deposit Package

First Republic rescue package and ECB hike drive risk-on day. Treasury yields soared today following news of a $30bn deposit package for First Republic Bank from a consortium of large American banks, a 50bp hike from the ECB and increased odds of a 25bp Fed hike at the March meeting. The 2-year yield was up 32bps following the ECB announcement and ended the day up 27bps, cementing a 6-day streak of volatile sessions with at least 20bp daily fluctuations. Regional bank stocks were up on the First Republic news and Secretary Yellen’s positive comments on the state of the U.S. banking sector to congress, with the KRE increasing ~3.5% on the day. Major equity indices ended the day higher, with the S&P up 1.76% and the NASDAQ climbing 2.48%.

ECB delivers 50bp hike in wake of Credit Suisse troubles. The ECB moved forward with the 50bp hike largely expected by economists, bringing the deposit rate to 3%. ECB voters have been clear about their plan to hike 50bps over the past 6 weeks, but today’s meeting offered little insight into future actions. President Lagarde said the future rate path is “not possible to determine at this point in time”, but indicated that if baseline economic conditions persist, the bank “would have more ground to cover”. Questions have been raised in both Europe and the U.S. about the pace of rate hikes given recent turmoil in the banking sector, and today’s ECB decision was being eyed closely given Credit Suisse’s recent troubles. Still, President Lagarde said that the ECB will continue to be guided by economic data, price pressures and the impact of prior hikes.