Financial market stress indicators reacted sharply on Monday after the failure of three U.S. banks within five days, which prompted a rethink among investors on the outlook for U.S. rates and triggered the biggest rush into bonds since at least 2008.
State regulators closed New York-based Signature Bank on Sunday, two days after California authorities shuttered Silicon Valley Bank, a lender that focused predominantly on start-ups. Crypto-focused bank Silvergate said last week it would also have to wind down its operations.
SVB is the largest bank to fail since the 2008 financial crisis last week, sending shockwaves across global markets.
U.S. regulators stepped in over the weekend to guarantee the deposits of SVB, but this did little to reassure investors that there will be no more fallout.
Investors reeled in their expectations for global central bank rate hikes, and bank stocks tumbled once again.
The cost of insuring exposure to European junk bonds soared to two-month highs, while various gauges of equity and bond market volatility shot to their highest since October and even gold hit a six-week peak.
“I would define the moves we’re having today as an old-fashioned flight to quality, this is what normally happens in times of stress. Credit spreads widen, equity markets come off and safe havens provide capital appreciation,” Juan Valenzuela, a bond fund manager at Artemis, said.
