Stock Markets Tumble as Bank Fears Go Global

“Fed is nuts if they think they can tighten,” said Andrew Brenner, the head of international fixed income at National Alliance Securities. “They will break the bank system if they keep thinking like this.”

The yield on the two-year Treasury bond, which is particularly sensitive to Fed policy, fell by a fifth of a percentage point, a big move for that asset, to just over 4 percent. Futures markets still expect that Fed policymakers will raise rates by a quarter-point at their next meeting, but they now believe that the central bank will begin cutting rates in the second half of the year, setting rates at a lower level at the end of the year than they are now.

In a sign of the whipsaw trading conditions confronting traders, a measure of volatility in the bond market soared to its highest level since 2009.

“The U.S. banking system remains resilient and on a solid foundation, with strong capital and liquidity throughout the system,” Michelle Bowman, a Federal Reserve governor, said at a conference in Hawaii on Tuesday. She added that the Fed’s board of governors “continues to carefully monitor developments in financial markets and across the financial system.”

In a further sign of the global spillover of concern about the banking system, Vietnam’s central bank slashed interest rates overnight as it looks to support its economy.

And in debt markets, where banks and other investors facilitate loans to companies across the world, investors’ fears were reflected in sliding bond and loan prices on Wednesday morning. The moves amplified concerns about the potential knock-on effect from stress in the banking sector, and among some start-up tech companies, leading to some companies being unable to repay their debts.

“Systemic risks are not our base case, but fragility is back,” noted analysts at Bank of America.

Article source: https://www.nytimes.com/2023/03/15/business/stocks-today.html