New York-based Signature Banko was shut down by U.S. market watchdogs on Sunday, two days after California authorities put a lock on Silicon Valley Bank, which lends mainly to startups. Crypto-focused bank Silvergate said last week that it would also be forced to liquidate its operations.
SVB is the largest bank to fail since the 2008 financial crisis, sending shock waves to global markets, including the Hungarian stock market.
US regulators stepped in over the weekend to guarantee SVB’s deposits, but that did little to reassure investors that there would be no more falls. Thus, markets took a back seat from expectations of global central bank interest rate hikes, and bank stocks fell again.
The cost of underwriting European bonds rose to a two-month high, while various measures of equity ( VIX ) and bond market ( MOVE ) volatility rose to their highest levels since October, and even gold hit a six-week high.
In addition, on the financial markets, one of the closely monitored indicators of the credit risk of the American banking system rose on Monday, as did other indicators of the credit risk of the euro zone. The FRA-OIS spread, which measures the difference between the US three-month forward interest rate agreement and the one-day index swap rate, opened to the widest since February 21, at 11.4 basis points, Reuters reports in its summary.
This spread is widely regarded as a proxy for banking sector risk, and a higher value reflects an increase in interbank lending risk.
European banks ( SX7P ) were also headed for their biggest one-day drop in a year, down more than 5 percent, as euro swap spreads – another key measure of risk – rose sharply.
The difference between two-year euro swap rates and two-year German bond yields jumped by about 20 basis points to 83 basis points, the highest level since November 11.
Analysts say this is the result of strong demand for safe-haven bonds. Mainly because the swap spread measures the premium of an interest rate swap fixed rate transaction used by investors as a hedge against interest rate risks compared to bond yields.
Three-month euro swaps reached minus 65 basis points, the highest since March 2020. Even at the end of 2008, when the investment bank Lehman Brothers collapsed, this swap rate reached minus 300 basis points.
However, for the time being there is no need to fear a banking crisis in Europe: the ECB did not convene the crisis team, and the impact of the collapse of the SVB can only be mild on the continent. Analysts speaking to Reuters attribute the increase in demand for safer assets to the negative sentiment created by the collapses.
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