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A remarkable day on the bond market

 The two-year yield dropped by more than 20 basis points.

If the yield curve has any impact in its own right, it is on banks. High short-term rates, exceeding the rates at which banks can lend for the longer term, make it much harder for them to compete for deposits; they either offer uneconomically high rates to depositors, or accept a loss of funds. 

A more deeply inverted yield curve for longer raises the risks of serious problems for the banks. Any sign of distress could move the bond market, because it would increase the chance of a reversal by the Fed. So that brings us to what’s happening to banks in the stock market. 

Bank stocks tumbled by the most in almost three years.

As Bloomberg colleagues put it, sudden selloffs in financials “are unlikely to sit well with investors at large after the 2008 financial crisis.” It was abrupt declines in bank stocks that finally shook the broader stock market from its peak in October 2007.

John Authers Bloomberg 10 mars 2023


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