Stock Markets Fall, Treasurys Rally

Stock Markets Fall, Treasurys Rally bloombergsubscription

Futures on WTI, the U.S. oil benchmark, dropped more than $3.72 per barrel, or 5.22%, to $67.61 today in Stock Markets.

Investors piled into government bonds, pulling the yield on benchmark 10-year Treasurys down as low as 3.391%, from 3.633% Tuesday, before it rebounded to 3.485%. The yield on the two-year note, a bellwether for economic contraction, fell to 3.973%, its lowest level in almost six months. Trading in the normally rock-solid U.S. bond market came under pressure as transaction time slowed down and volatility increased.

Selling that had been mostly contained to U.S. stocks is broadening on the risk that banking-sector turmoil could be what tips the U.S. economy into a recession that analysts have been predicting for over a year. The market’s obsession with inflation and whether the U.S. Federal Reserve would raise interest rates by a quarter-point or a half-point

“It has all the signs of a panic in the stock market and it has all the signs of panic in the bond market,” said David Kotok, chief investment officer at Cumberland Advisors. If risk premiums start to surge in corporate and mortgage-bond markets, that will likely set off another leg of selling in stocks, he said.

Another worrying sign Mr. Kotok is keeping an eye on, the ICE BofA MOVE Index—a measure of volatility in the bond market— surpassed levels recorded during the March 2020 market crash.

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Efforts by U.S. officials and regulators to stop Silicon Valley Bank’s collapse from spilling over into the financial system appeared to have stabilized Stock Markets Tuesday. But the selloff in stocks and hunt for safe assets began again Wednesday, showing that investors remain on edge about the potential for tremors in the global banking system.

U.S. supplier prices fell in February from a month earlier, a possible sign of a recent easing in inflationary pressures.

The producer-price index, which generally reflects supply conditions across the economy, fell 0.1% in February from the prior month. Compared with a downwardly revised 0.3% increase in January, the Labor Department said Wednesday.

The focus of investor angst shifted to Europe, where Credit Suisse shares plunged 24% in Switzerland. Amid concerns that difficulties at the bank could spread to other lenders, shares of French bank Société Générale fell 12% while BNP Paribas dropped 10% and Germany’s Commerzbank lost about 9%.

Money managers dumped shares of Credit Suisse—long seen as a weak point in the continent’s banking sector—reflecting increasing worry about the bank’s struggles to stabilize its operations. The slide accelerated after the chairman of Saudi National Bank, Credit Suisse’s largest shareholder, said that the Saudi lender wasn’t considering topping up its investment.

“This is what Stock Markets do,” said Samy Chaar, chief economist at Swiss private bank Lombard Odier.

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The Swiss bank’s 9.75% bond lost about half its value Wednesday to trade at 33 cents on the dollar, according to MarketAxess.

The nascent recovery in regional U.S. banking stocks meanwhile ran out of steam. First Republic Bank, whose shares started tanking last week after investors zeroed in on its similarity to SVB, fell an additional 21%. S&P Global Ratings pushed the First Republic’s bonds into junk-debt category by downgrading them four notches to double-B-plus and some of the debt lost 13% to trade at 59 cents on the dollar, according to MarketAxess.

The ratings firm is keeping First Republic on negative credit watch, indicating a relatively high risk of future downgrades.

Some of the nation’s biggest banks also declined, including Citigroup, down 5.4%, and Wells Fargo, which fell 3.3%.

Most stocks recovered much of their early-day losses after Swiss regulators said they would give Credit Suisse a backstop if needed.

“I’m slightly optimistic,” said Michael Antonelli, a market strategist at Baird Private Wealth Management. “The fact that Swiss bank regulators understand the situation and are not dragging their feet shows they’ve learned lessons form past crises.”

Stock Markets Modes

Technology stocks led the way higher with Netflix Inc. gaining 3% to close at $303.79. Charles Scwab Corp., Which had been caught in the earlier bank selloff rose 5.06% to $59.55.

“I don’t think we’re out of the woods,” said Hani Redha, a multi asset portfolio manager at PineBridge Investments. Stock Markets will oscillate between two modes—panic and expansion—at least for several weeks, according to Mr. Redha, who said a run on regional U.S. banks was a low-probability but high-impact event that couldn’t be ruled out.

Mr. Redha said the Federal Reserve’s recent moves—particularly a new funding program with generous collateral terms—should be sufficient to stop more banks from toppling.

Silicon Valley Bank collapsed after a run sparked in part by big losses on the bank’s bond portfolio. The failure, and those of two other U.S. banks, prompted money managers to home in on threats to financial stability at the end of a long stretch of low rates.

Elsewhere in global Stock Markets, Asian stocks were broadly higher, led by a 1.5% advance for Hong Kong’s Hang Seng Index.

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