Good Friday AM and Happy St. Patrick’s Day,
First a bit on St. Patrick’s Day. I like this stuff. The History Channel and Nat Geo (and then Bravo): St. Patrick’s Day is celebrated annually on March 17, the anniversary of his death in the fifth century. The Irish have observed this day as a religious holiday for over 1,000 years In the centuries following Patrick’s death (believed to have been on March 17, 461), the mythology surrounding. his life became ever more ingrained in the Irish culture: Perhaps the most well-known legend of St. Patrick is that he explained the Holy Trinity (Father, Son and Holy Spirit) using the three leaves of a native Irish clover, the shamrock.
Yesterday a big selloff when bank stepped up to shore up First Republic Bank with $30b in deposits.
Markets paused as they digested the news. Today no one is sure about banks and equities are hurting. Bonds are bouncing back a bit from yesterday’s pullback. All the news released this morning is bond friendly, but the catalyst to any big moves you see over the coming days will be banking related. If something good happens or is said about the banking industry, bonds will struggle and of course the opposite is true.
The ten-year bounced hard two days in a row right at the 200-day moving average.
This is something we want to keep an eye on. The 200 MA is sitting at 3.40%. If we do not close below, it soon, we will retest 3.50, which is a key Fibonacci Level. I cannot tell you whether to lock or float due to the looming crises. I can tell you that the charts look good and if not for the current banking situation I would float. BUT do not turn your back on this situation; it can produce extreme volatility in both directions. The Fed meeting is coming. Will they let spring in? I sense a crack in the door but not open wide yet. Still expecting a 25bp hike for now (but things are changing quickly).
If you think the stress in banking is limited to just a few regional banks, liquidity needs across the sector are evident as the sector continued to tap the Federal Home Loan banks for short-term loans, bringing the system’s total borrowings over just three days to $120 billion. Borrowing at the window implies the situation in the banking system remains uncertain. Borrowing from the window is considered evidence of potential problems, it is the last place to go and usually puts bank examiners on high alert. This may be just to shore up balance sheets and provide liquidity, but stomach is starting to hurt.
A good recap on bonds for the week and some from Bloomberg.
The Move index is a real thing. It is the VIX for Bonds.
This was the wildest week for bond markets since at least 2008. The question now is whether the real economy is headed for the same sort of slowdown that followed the global financial crisis. Traders came into this week near-certain yields and policy rates were going higher. A slew of bank crises dislocated those expectations, leaving rates markets struggling to work out whether this is the end of the steepest tightening cycle in a generation — or simply a speed bump. Robust inflation readings didn’t help and neither did continuing signs of strain across the financial system as Silicon Valley Bank’s collapse was followed by wobbles at Credit Suisse and First Republic.
The bond market’s fear gauge — ICE’s MOVE index of implied volatility — spiked to levels last seen in 2008. Actual yield moves reached the epic levels seen during the 1987 Black Monday equities meltdown and the Volcker-era gyrations of 1982, when record rate hikes set off a recession and tamed inflation. The moves were demonstrably exacerbated by the way liquidity evaporated across Treasuries. Volumes for rates futures surged as traders swung back and forth between betting on Fed hikes and cuts. All this turmoil spread stress across the global financial markets.
Please remain safe and stay healthy, enjoy the weekend and first, make today great!
