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Your Quiver | Thursday, March 16, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Treasury Talk

Front-end UST yields fell -25bps, and the broad curve steepened +18bps as US UST yields followed their DM peers lower amid a global flight-to-quality rally. Liquidity remains extremely depressed (at levels last observed in March 2020) which is a function of an historically large volatility decline in front-end yields. The 30-yr bond intraday rebound lags behind points further in on the curve as a renewed flight-to-quality bid steepens the yield curve.

Flight to Quality


SVB’s failure already has led to tighter credit conditions at banks. Let’s play a game–guess which big institution won’t bank any new RIAs? We expect loan losses to go up at banks globally. Even before SVB’s demise, investors were moving out of Cyclicals and into Defensives. Over the last month, 3 of the 4 best performing sectors were Defensives. So, we’re lookin’ at you: Staples, Healthcare, and Utilities. ASR sorted which Defensives also rank high on Quality. Not a bad place to start if you’re putting capital to work (or have to keep capital working).

ECB Hike

50 bps hike today in the EZ. So, for those of you betting against a Fed hike coming up…think again. Central banks are fighting inflation—they are using other tools to shore up the financial system.

Evictions


They’re back. And in some places, higher than pre-pandemic levels. Per Axios, eviction moratoriums are over (remember those?) so we’re seeing numbers go up.

March Madness

Forget your sports brackets, let’s take a look at bank brackets. JPM is calling for UBS + CS. We’re betting JPM + FRC. Who’s your pick? In all seriousness, the FDIC asked banks interested in buying SVB or Signature to submit bids by tomorrow, per Reuters. PE shops were licking their chops for the $74bn loan book at SVB, but the FDIC sharpened their pencils and aren’t going to let them take advantage of the situation.

GDP Hit

GS just brought their numbers down for US GDP this year. JPM is now calling for a hit of as much as 1% if growth in small/regional banks’ aggregate portfolios get curtailed. Their recent annual pace was +$500bn.

Exports Alive

Japan is lifting export curbs of key chip materials to South Korea. So, global supply chains can breathe easier today. In response, South Korea will drop its complaint to the WTO.