End Of Day Report March 13th

HIGHLIGHTS

- The Fed has introduced a 'Bank Term Funding Programme', which has USD 25bln of funds immediately available, and will allow banks to borrow from the Fed using Treasury bonds as 
  collateral; the bonds will be valued at par.
- Swiss Department of Finance says Supervisory Authority FINMA is closely monitoring Credit Suisse 
- US President Biden says no losses will be borne by US taxpayers, and money will come from insurance fund fees Investors in banks will not be protected
- UBS expects Fed to keep hiking despite banking troubles, feels the market is "overshooting in the opposite direction"; expects 25bps hikes at next three meetings to 5.5% UBS says if core CPI comes in at 0.5-0.6% M/M, above its expectations for 0.3%, "the Fed may feel they have the 'financial stability cover' to even do 50bps in March."
- Barclays sees Fed leaving rates unchanged at March FOMC "with financial stability concerns moving to the forefront", but continues to believe more hikes will come
- White House says the Treasury is working with bank regulators on next steps; regulators have tools to deal with disruptions and supervise banks and this is not a bailout (HA!)
- Federal Reserve reportedly to probe its supervision of SVB and release review by May 1st, according to Bloomberg 
- Fed Chairman Powell says SVB failure demands 'thorough, transparent and swift review'. 
- US Federal Reserve Vice Chair for Supervision Barr will lead a review of supervision and regulation of SVB.

SUMMARY

Well, that escalated quickly.....

A mere 5 days ago it was almost certain that the Fed would have to raise rates 50bp at the next meeting, after a hawkish testimony by Fed GOvenor Powell to Congress. Now we are pricing in the possibility of a CUT! IF not the next meeting , then very soon (given the 103 bp rally in SFRM3 & the 116 BP rally in the SFRU3!!!!!)
 The unexpected demise of Signature Bank over the weekend, along with the failure of Silicon Valley Bank, ignited a shoot-first-ask-questions-later reaction among regional-bank investors as customers moved deposits to the largest U.S. banks for perceived safekeeping which fed through to the rate markets. Even though the Federal Reserve announced a new backstop program and President Joe Biden declared U.S. banks safe, investors remain skeptical about the fixes in place for the banking system.
 The Fed on Sunday announced the Bank Term Funding Program and the baking authorities together announced full protection to depositors at the failed banks, measures that have ramped speculation (and pricing) of easier Fed policy, seeing historic strength in Treasuries: 2s30s spiked over 50bps, the largest one-day steepening since the 84bps on the day after 'Black Monday' in 1987, with the curve at its least inverted since late December.
CPI is next up tomorrow, although it's likely to feel like second fiddle with the financial stability concerns overshadowing the market.