Silicon Valley Bank Rocks Crypto and Stock Markets Ahead of Nonfarm Payrolls
Risk aversion is in full swing, thanks to a crisis at Silicon Valley Bank (SIVB), a key lender to technology startups.
On Thursday, the self-described financial partner of the innovation economy sold a $21 billion bond portfolio at a significant loss to shore up liquidity, sending shockwaves through financial markets. The bank’s issues reportedly stem from the Federal Reserve’s (Fed) aggressive interest rate hikes and the resulting fall in bond prices and rise in yields. The two move in opposite directions).
The market is concerned that other lenders may also face SIVB-like problems. That’s evident from the sharp fall in state-side bank stocks and their European peers. The KBW Nasdaq banking index fell more than 7% on Thursday, posting its biggest one-day decline since 2020.
Bitcoin and Ether have fallen 8% each in the past 24 hours, hitting two-month lows. Meanwhile, Treasuries, or US Treasuries, have witnessed safe haven flows. The 10-year yield was trading at 3.85% at press time, down 15 basis points from Thursday’s high of 4%. The two-year yield has fallen to 4.83% from 5.07%.
“Silicon Valley Bank (SIVB), another crypto-friendly bank, is coming under pressure. The bank is generally seen as one of the default backup options for industry participants affected by the Silvergate collapse. Operation Chokepoint 2.0 continues to tighten its grip,” Ilan Solot, co -head of digital assets at Marex, said in an email.
This could be the first instance of bond yields collapsing with stocks and cryptocurrencies since the Fed began its tightening cycle last year – good old-fashioned risk aversion where investors seek safety under bonds. Perhaps investors expect the Fed to slow its tightening cycle in the wake of stress in the banking system.
“Pressures on the US banking system call into question whether the Fed can push ahead with such an aggressive tightening cycle. This has seen US two-year Treasury yields fall 25bp in the last two days alone. This is dollar bearish,” ING’s head of FX strategy Chris Turner said in a market update. Dollar weakness usually bodes well for risk assets.
Data from Fed Funds futures show that the probability of the Fed raising interest rates by 50 basis points to a range of 5%-5.25% later this month has fallen to 54% from 75% on Wednesday. The forecast for the terminal rate, the level at which the tightening cycle is likely to end, has also fallen to 5.5% from 5.65% reached early this week following Fed Chair Jerome Powell’s hawkish testimony.
According to ING, systemic risk could wipe out bets for 50 basis point interest rate increases, but there is currently no indication that it is a widespread problem in the banking sector. So the odds of yields and rate hikes could return, adding bearish pressure around risk assets in the event that wages data misses expectations.
According to Reuters, nonfarm payrolls are likely to show an increase of 205,000 in January, marking a decline from January’s blowout figure of 517,000. Wages are projected to increase 4.7% year-on-year in February compared to January’s 4.4%.
A big miss on expectations could raise sentiment in the crypto market, and bring a relief rally.
