Financial tension among smaller U.S. banks could prompt the Federal Reserve to pause its rate-hike cycle this month, according to Daniel Ivascyn, chief investment officer at Pacific Investment Management Co.
“A lot has changed over the weekend,” said Ivascyn, manager of the Pimco Income Fund., the world’s largest actively managed bond fund, at $116 billion. “There has been a significant adjustment in financial conditions and significant risk aversion that we do not believe has ended. This is probably a multi-month adjustment process” for the financial system.
After the crash of Silicon Valley Bank, stock markets fall around the world
Following the collapse of SVB Financial Group’s Silicon Valley Bank on Friday and the closure of Signature Bank by regulators, The KBW Regional Banking Index fell as much as 12% on Monday, its biggest intraday drop since March 2020.
“This is the first time we’ve seen a significant trade-off between fighting inflation and financial conditions,” Ivascyn said in a telephone interview on Monday. “We think that monetary policy officials will be alert. The Fed may pause [en las alzas de tasas] in March and we believe that there will be more repercussions in the banking sector”.
A number of observers, including Goldman Sachs Group Inc. and NatWest Markets, They have already modified their forecasts for the March meeting and now they do not predict changes.
The swaps indicate a one in two chance that the Fed will raise rates by a quarter point at its March 21-22 meeting, unlike last week when, at one point, a hike was considered more likely. of 50 basis points than one of 25 basis points. On Monday, at one minute, there was a clear bias towards the market taking the most likely scenario as no further hikes, although that later changed.
Risk Asset Selloffs Increased Demand for Treasuries, sending two-year notes tumbling nearly 60 basis points to 3.99%. The benchmark index was headed for its steepest three-day drop since Black Monday in October 1987. Less than a week ago, the benchmark index hit 5.08%, its highest return since 2007.
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