U.S. stock futures rallied in Asian trade on Monday as authorities announced plans to limit the fallout from the collapse of Silicon Valley Bank, while investors wagered future hikes in U.S rates would now be less aggressive. | Reuters
Analysts noted that, importantly, the Fed would accept collateral at par rather than marking to market, allowing banks to borrow funds without having to sell assets at a loss.“Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age,” he added. “But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.
MSCI’s broadest index of Asia-Pacific shares outside Japan held steady as investors pondered the consequences for regional markets.Such was the concern about financial stability, that investors speculated the Fed would now be reluctant to rock the boat by hiking interest rates by a super-sized 50 basis points this month.Fed fund futures surged in early trading to imply only a 17- percent chance of a half-point hike, compared to around 70 percent before the SVB news broke last week.
That, combined with the shift to safety, saw yields on two-year Treasuries fall further to 4.51 percent, a world away from last week’s 5.08 percent peak.“Accelerating your pace of hikes in the face of a significant bank failure may not be the wisest play for the Fed, especially if subsequent problems emerge stemming from similar root causes – underwater rates portfolios,” said John Briggs, global head of economics at NatWest Markets.
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