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Markets Roundup: Paradigm Shift In Hike Expectations Post Bank Fails

US TSYS
  • Surge in short end rates resumed as Silicone Valley Investment Bank collapsed late last week, followed by New York's Signature Bank on Sunday, the bank run on deposits continued to send shock waves across markets Monday.
  • A paradigm shift from last week's rate hike expectations to rate cuts occurred as short end exploded higher: Fed terminal rate fell to 4.810 in May'23, down over 80bp for August late last week. Fed funds implied hike for Mar'23 at 18.7bp, May'23 cumulative 25.9bp to 4.819%, Jun'23 dipped to 13.4bp to 4.694%. Rate cuts start pricing in for Jul'23: -16.5 cumulative at 4.398%.
  • In Treasuries, 2Y futures traded over a full point higher to 103-15.38, yield fell below 4.0% to 3.9889% low in the first half while yield curves bull steepened: 2s10s tapped -54.707 high -- nearly 50% higher than last week's four decade lows.
  • Of note, Goldman Sachs and Barclays both revised their rate call to steady next week from +50bp prior.
  • Despite sharply lower bank stocks on the day, US equities are modestly firmer in recent trade, the e-mini S&P futures near middle of the session range at 9818.0 (+21) below initial resistance of 3960.75 Low Mar 2.
  • No data on the day, CPI tomorrow MoM (0.5% prior, 0.4% est); YoY (6.4%, 6.0%) while the Federal Reserve will remain in media blackout regarding monetary policy through March 23.
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