US Treasury Yields Plunge After SVB Collapse, Stocks Rise as Fed Takes Action
The 10-year U.S. Treasury yield tumbled to 3.69% last Friday, and then to 3.47% on Monday morning, as safe-haven flows drove bonds sharply higher following the Silicon Valley Bank (SVB) collapse.[0] The 2-year yield plummeted to 4.59%, including 31 basis points on Friday and 48 points on Thursday-Friday. Meanwhile, the 10-year yield fell 15 basis points to 3.55%, while the 2-year yield dropped 35 basis points to 4.23%.
As indicated by the CME FedWatch tool, there is a 64.2% likelihood of a 25 basis point increase of the interest rate at the upcoming monetary policy committee meeting, whereas a 35.8% probability of no rate change is being considered.[1] Only a week ago, markets were predicting an 80% likelihood of a 0.50% rate increase at the March meeting, demonstrating how much the rate hike expectations have changed.[2]
HSBC Holdings plc announced that its UK ring-fenced subsidiary, HSBC UK Bank plc, is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1.[3] As of 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn.[4] For the year ending December 31, 2022, SVB UK reported a pre-tax profit of £88 million.[5] This acquisition will be financed with existing funds.[5]
U.S. stocks rose Monday after federal banking regulators took aggressive actions to stem the fallout of SVB's failure.[6] At 10:00 a.m., the Nasdaq 100 (NDX) had risen 0.1%, the S&P 500 (SPX) had increased by 0.05%, and the Dow Jones Industrial Average (DJIA) had gone up 0. March 13th[7] At 5:15 a.m., futures on the Nasdaq 100 (NDX) and S&P 500 (SPX) have risen by 0.60% and 0.14%, respectively, while the Dow Jones Industrial Average (DJIA) has dropped by 0.12%. March 13th[7]
On Sunday, the Federal Reserve announced that it is prepared to supply extra capital to qualified depository establishments and stand ready to tackle possible liquidity difficulties that may come up. The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.
0. “US and European bank stocks tumble as investors fret over SVB fallout” Financial Times, 13 Mar. 2023, https://www.ft.com/content/bbeea0e6-b5d6-4c6f-91f3-06508aa42351
1. “What a rescue for SVB depositors means for the stock market and interest rates” MarketWatch, 13 Mar. 2023, https://www.marketwatch.com/story/svb-collapse-means-more-stock-market-volatility-what-investors-need-to-know-b87c962b
2. “Nasdaq, S&P, Dow futures mixed as traders parse SVB fallout, government measures (SPX)” Seeking Alpha, 13 Mar. 2023, https://seekingalpha.com/news/3946799-nasdaq-sp500-dow-jones-futures-stock-market-svb-financial-measures
3. “European stocks fall 2.4%, banks slide 6% after HSBC rescues Silicon Valley Bank UK” CNBC, 13 Mar. 2023, https://www.cnbc.com/2023/03/13/european-markets-live-updates-news-silicon-valley-bank-fallout.html
4. “HSBC buys SVB's UK business, ending ‘nightmare' for British tech” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/13/investing/svb-uk-business-deal-intl-hnk/index.html
5. “HSBC acquires Silicon Valley Bank UK Limited” HSBC, 13 Mar. 2023, https://www.hsbc.com/news-and-media/media-releases/2023/hsbc-acquires-silicon-valley-bank-uk-limited
6. “Stock market news today: Stocks seesaw, bond yields, bank stocks fall on SVB fallout” Yahoo News, 13 Mar. 2023, https://news.yahoo.com/stock-market-news-today-live-updates-march-13-2023-114351107.html
7. “U.S., European bond yields crumble as bailouts drive central bank repricing By Investing.com” Investing.com, 13 Mar. 2023, https://www.investing.com/news/economy/us-european-bond-yields-crumble-as-bailouts-drive-central-bank-repricing-3028976
