Treasury Yields Decline as Banks Lead Stocks Lower, SVB Financial Losses Raise Questions
Treasury yields saw a steep decline on Friday with the 10-year Treasury yield (US10Y) falling 21 basis points to 3.71% and the 2-year yield (US2Y) falling 27 basis points to 4.63%. Oracle Corporation (NYSE:ORCL) reported mixed fourth-quarter results as revenue missed Wall Street expectations, sending the stock more than 3% lower. Banks led the losses across the blue-chip index, with Lloyds (LLOY.L) falling 3.12%, HSBC (HSBA.L) losing 4.81%, Barclays (BARC.L) declining 3.41% and NatWest (NWG.L) slipping 2.93%.
The February jobs report, which was closely monitored, showed that nonfarm payrolls were significantly higher than expected, coming in at 311K compared to the anticipated 223K. Although this was lower than the impressive figure from January. Although the unemployment rate moved to 3.6% from 3.4%, while average hourly earnings rose but not as much as anticipated on both a monthly and yearly basis. The Labor Force Participation Rate unexpectedly rose to 62.5%, and Average Hourly Earnings rose 0.2%, below the 0.3% consensus.
SVB Financial’s (SIVB) difficulties raised questions on the subject of unrealised losses on bond portfolios and what it means for bank capitalisation levels. Financials led the S&P 500 index lower yesterday, while SVB announced it had lost roughly US$1.8bn following the sale of a portfolio of securities valued at US$21bn, which it offloaded in response to a decline in customer deposits. In light of the losses, the bank declared a stock offering to bolster its capital situation. FRC and SBNY were two of the highest percentage declines on the S&P 500 due to the repercussions of SVB.
Analysts believe the risk of debt contagion from the small banks to big ones is remote, given the low share of regional banks in the investment grade, or IG, index. The note provided three points to support its view. Given that regional lenders only account for 1.5% of the investment grade bond market, the likelihood of contagion from small to large banks is highly unlikely. Second, the low share is itself “quite diversified, with 15 issuers and no one issuer accounting for more than 20% of the notional outstanding.
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