Public Finance
3/17/2023 Market Commentary
March 17, 2023
The term March Madness applies to more than just college hoops this year, after the collapse of three banks created the most tumultuous week in banking since 2008. Last Friday, California regulators shut down Silicon Valley Bank (“SVB”), the world’s 16th largest bank. The fallout has affected Treasuries, equities, and municipals alike. The fear that more banks could follow suit has driven investors into buying short-term fixed income securities in what is referred to as a ‘flight-to-safety’. Today, the 2-Year Treasury sits at 4.12%, a whopping 90 basis points lower than its position in the days leading up to SVB’s demise.
Municipal bonds have benefitted as well; yields are down all along the MMD curve, with the short-end seeing the largest shift. The 1-year MMD has dropped by 37 basis points since the start of the frenzy, well surpassing the 16-20 basis point drop seen on the long-end of the curve.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| March 9, 2023 | 2.61% | 3.58% |
| March 16, 2023 | 2.38% | 3.42% |
| Change (bps) | -23 | -16 |
Treasury yields saw some very large swings over the course of the week. The fear of an unstable banking sector has caused yields to dip, and any news surrounding a bank ‘bail out’ or purchase has caused yields to rise. Overall, Treasury yields are significantly lower than where they were before SVB’s collapse.
In other news, February’s CPI report released this week, which showed that year-over-year inflation came in at 6%. The data in the CPI Report was mostly in line with expectations, aside for Core CPI (excludes food and energy prices) which came in slightly higher than expected. After the CPI report released, traders have now priced in an 85% chance that the Fed will hike the Federal Funds rate by another quarter point at next week’s FOMC meeting.
Treasury yields over the past week
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| March 9, 2023 | 3.93% | 3.87% |
| March 16, 2023 | 3.55% | 3.70% |
| Change (bps) | -38 | -17 |
Written by Dan Shaw, Director, Oppenheimer & Co. Inc., Public Finance.
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