As banks tremble, markets hear the sound of peak interest rates – #banks #tremble #markets #hear #sound #peak #interest #rates

SINGAPORE, March 13 (Reuters) – Investors scrambled on Monday to downgrade expectations of global interest rates, the biggest since the financial crisis in the U.S. bank counting on its failure, they abandoned bets that the Fed would raise interest rates next week, making policymakers think twice.

Sunday USA administration bank took immediate steps to shore up its confidence, guaranteed deposits after withdrawals brought down Silicon Valley Bank, and closed down New York-based lender Signature Bank.

Monday Europe shares of banks depreciated by more than 5% and USA markets remained fragile as banks started to open lower (.SX7P).

With the mood feverish and frayed, bond markets quickly reassessed interest rate expectations, anticipating that the Federal Reserve would be reluctant to hike next week.

Until 1053 GMT, futures prices It implied just a 50% chance the Fed would raise borrowing costs by 25 basis points next week – a big change from last week, when markets were betting more on a 50 bps move.

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Chief Investment Officer of BlueBay Asset Management Mark Dowding, “Sabah CPI (inflation) and unless the market turmoil really continues and leads to a tightening of financial conditions, the Fed will do 25 bps,” he said.

“If interest rate hikes start to bite, you have to be more careful.”

Reuters graphics

Traders in Europe on Thursday Europe They scaled back bets that the central bank would raise interest rates by 50 bps and now see a 25 bps hike in May rather than a 50 bps hike.

Markets are also great Britain has modified its views on interest rates and there is about a 75% chance of a 25bps hike when the Bank of England meets next week.

All that helped extend a rally in short-dated bonds on Monday, sending two-year Treasuries on track for their best three-day gain since 1987.

Banks have also revised their forecasts. Goldman Sachs said on Sunday that tensions in banks no longer expect the Fed to raise interest rates next week.

Two years USA Treasury yields were last down 30 basis points and are down 75 bps since Wednesday.

At 4.30%, they are also below the lower end of the Fed funds rate window at 4.5% – markets see a peak looming.

Biggest three-day drop in UST earnings since 1987

“I think people are attributing Silicon Valley Bank’s problems to the rate hikes we’ve already had,” said ING economist Rob Carnell.

“If rate hikes lead to that, the Fed will take that into account going forward,” he said. “It doesn’t want to go to the tap with another 50 (bps increase) and see another financial institution get diluted.”

TERMINAL SLIDE

Monday’s moves also advanced sharply, undercutting market expectations that rates would peak.

US interest rates are expected to reach around 4.9% in June, down from around 5.7% on Wednesday.

This is followed by a 60% chance of a 50 bps rate cut by December, a big drop from 5.5% at the end of last week.

Traders also cut bets that the ECB’s borrowing costs will peak to around 3.5% in November, from 4.1% last week.

Danish Bank“There will be more focus on the risks to Lagarde’s outlook on Thursday if the SVB doesn’t happen,” said Piet Christiansen, chief analyst at .

“So I think the risks are bigger now than before,” Christiansen said, though he kept his forecast for the ECB’s 4% peak rate.

The size of the changes reflects poor liquidity in the markets, and especially in the US on Tuesday inflation has drawn warnings from analysts who say it could be quickly removed if its data is strong.

Longer-dated bond yields have also fallen less than their shorter-dated peers, with inflation a bigger risk if gains slow or stall.

“If anything, the support for depositors supports the view that the Fed may continue to tighten,” said Jack Chambers, chief rates strategist at ANZ Bank in Sydney.

A new Fed bank funding scheme aimed at addressing some of Silicon Valley Bank’s apparent problems with losses on its bond portfolio is expected to further aid stability for banks and bonds.

Banks will now be able to borrow from the Fed at more than market value against collateral such as Treasuries – bank bonds to meet unexpected withdrawals cancellation significantly reduces the need to

Reporting by Tom Westbrook and Yoruk Bahçeli, additional reporting by Dhara Ranasinghe and Amanda Cooper; Edited by Sam Holmes and Catherine Evans

Our standards: Thomson Reuters Trust Principles.

2023-03-13 16:33:39
Source – reuters

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