Euro zone bond yields drop as contagion risk spooks investors

March 20 (Reuters) – Euro zone government bond yields dropped on Monday as risks of a banking crisis kept spooking investors after UBS sealed a deal to buy Credit Suisse and some of the world’s largest central banks teamed up to reassure markets.

UBS will pay 3 billion Swiss francs (USD 3.24 billion) for Credit Suisse, and the Swiss central bank (SNB) said it would supply substantial liquidity to the merged bank.

The Federal Reserve joined forces with the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and SNB in a coordinated action to enhance the provision of liquidity through their standing US dollar swap line arrangements.

German government bond yields hit their lowest since mid-December with the 10-year yield, the bloc’s benchmark, down 15 basis points to 1.97%, after reaching 1.951%.

The spread between Italian and German 10-year yields was last at 201 bps.

“Market perception depends on sentiment as much as on facts, being driven by balance sheet exposures, hedge coverage and real-time deposit (out)flows – which are by and large private information,” said Michael Leister, head of interest rates strategy at Commerzbank.

(Reporting by Stefano Rebaudo, Editing by Bernadette Baum)

Oil prices rebound after hitting lowest since 2021 on banking fears

NEW YORK, March 20 (Reuters) – Oil prices rebounded and rose over 1% on Monday after diving to their lowest levels in 15 months as the market worried that risks in the global banking sector could spark a recession that would sap fuel demand.

In volatile trade, Brent crude futures for May rose 82 cents, or 1.1% to USD 73.79 a barrel. US West Texas Intermediate crude futures for April gained 90 cents, or 1.4%, at USD 67.64 on the eve of the contract’s expiry. The more actively traded May futures rose 89 cents, or 1.3%, at USD 67.82 a barrel.

Oil prices rebounded as Wall Street posted gains. Earlier, Brent and WTI fell about USD 3 a barrel to the lowest since December 2021, with WTI sinking below USD 65 a barrel at one point. Last week, both benchmarks shed more than 10% as the banking crisis deepened.

Oil’s early slide occurred despite an historic deal in which UBS, Switzerland’s largest bank, agreed to buy Credit Suisse (CSGN) in an attempt to rescue the country’s second-biggest bank.

After the deal was announced, the US Federal Reserve, European Central Bank and other major central banks pledged to enhance market liquidity and support other banks.

“There’s a lot of fear-based movement (in oil prices),” Price Futures Group analyst Phil Flynn said. “We’re not moving at all on supply and demand fundamentals, we’re just moving on the banking concerns.”

The S&P 500 and the Dow Jones gained, helping lift oil prices off session lows on bets the Fed will probably pause on rate hikes on Wednesday to ensure bank sector troubles do not snowball. Traders and economists remain split on whether the Fed will raise its benchmark policy rate.

Some executives are calling on the central bank to pause its monetary policy tightening but be ready to resume raising rates later.

“Volatility is likely to linger this week, with broader financial market concerns likely to remain at the forefront,” ING Bank analysts said in a note, adding the looming Fed decision adds to uncertainty in markets.

Meanwhile, Group of Seven Nations are not likely to revise a USD 60-per-barrel price cap on Russian oil this week, two European Union officials and one official from a coalition member told Reuters on Monday.

The G7 was due in mid-March to revise the price cap put in place in December, but the officials said EU countries’ ambassadors were told by the European Commission over the weekend there is no appetite among the G7 for an imminent review.

A ministerial committee of OPEC and producer allies including Russia, together known as OPEC+, is set for a meeting April 3. The group agreed in October to cut oil production targets by 2 million barrels per day until the end of 2023.

(Reporting by Stephanie Kelly in New York; additional reporting by Noah Browning in London, Florence Tan and Emily Chow in Singapore; Editing by Paul Simao, Chris Reese and David Gregorio)

Stock futures nudge higher on Credit Suisse buyout

SINGAPORE, March 20 (Reuters) – A volatile day looms in Asia on Monday, as investors’ relief at a rescue deal for Credit Suisse and coordinated support from global central banks was tinged with nerves over how deep troubles run in the world’s banking and financial system.

S&P 500 futures rose 0.2% in bumpy early trade. In the thin morning hours of currency trade, the US dollar was marginally weaker on the euro. The safe-haven yen was steady.

In a little over a week, the fallout from the collapse of Silicon Valley Bank – which has roiled confidence in the banking system – has brought a globally systemic lender to its knees.

Over the weekend, UBS said it will buy Credit Suisse for 3 billion francs (USD 3.2 billion) and assume up to USD 5.4 billion in losses, in a shotgun merger engineered by Swiss authorities.

Central banks including the US Federal Reserve, the European Central Bank and Bank of Japan pledged to deepen support for liquidity, by increasing the frequency seven-day dollar-swap operations from weekly to daily.

“The best we can say was there are certainly a lot of concerns about Credit Suisse contagion risk,” said Rodrigo Catril, a senior currency strategist at National Australia Bank in Sydney.

“The news overnight from Switzerland has helped,” he said, though added that the central bank moves had calmed as well as created nerves.

“It’s the irony of good news reflecting how bad things are. It’s great we’re seeing this concerted effort from central banks, and it’s positive, but it does also highlight how troubling the circumstances are and how worried central banks appear to be as well.”

US 10-year Treasury bond June futures fell 19 ticks in early trade. US interest rate futures bounced around either side of flat, as investors try and figure out what moves to contain bank wobbles mean for global interest rates.

Pricing implies about a 60% chance that the Fed hikes rates at its meeting later in the week but has also priced in several rate cuts by the end of the year.

Stockmarkets were yet to open in Asia. In foreign exchange trade the Swiss franc, which took a beating as worries about Credit Suisse grew last week, rose about 0.4% to 0.9264 to the dollar.

The yen traded steady at 131.87 per dollar. The euro rose 0.1% to USD 1.1067.

(Reporting by Tom Westbrook; Editing by Sam Holmes)

Dysfunction in “wildly illiquid” bond markets unnerves investors, officials

LONDON, March 17 (Reuters) – Wild price swings in government bonds on a scale not seen in decades given banking sector turmoil have sparked concern about the smooth functioning of a market considered vital to the global financial system.

Trading in short-dated German bond futures was briefly interrupted due to volatility after Thursday’s European Central Bank’s rates decision and on Wednesday CME Group briefly halted trade in some US interest rate futures.

Separately, two days of chaos in China’s USD 21 trillion bond market ended on Friday after Beijing allowed money brokers to resume providing data to third-party platforms.

Extreme intraday price swings in government bonds, used as benchmarks for the pricing of a host of other assets, is another headache for officials navigating banking sector turmoil that has drawn parallels with the 2008 global financial crisis.

Jeffrey Gundlach, CEO of DoubleLine Capital, said he considered selling Treasuries earlier in the week, but the market was “wildly illiquid.”

“The strangest bond day ever was Tuesday this week where if you took your eyes off the Treasury market screen for one minute …When you looked back at the screen the price could be a point different on 10 years, 30 years (bonds),” he said.

Euro zone benchmark bond issuer Germany’s two-year bond futures have been exceptionally volatile. On March 15, when the extent of Credit Suisse’s problems started to become apparent, the front-month futures contract saw its biggest swing between intraday highs and lows on record, according to Refinitiv data.

Two-year US and German bond yields fell over 50 basis points (bps) each on Wednesday, the biggest daily moves in at least 28 years, before rising sharply the next day.

“We have seen the biggest swings in decades, that is the point of comparison,” said Nordea chief analyst Jan von Gerich.

“Across markets it’s not the same volatility as it was during the global financial crisis, but in the bond markets these are big swings and that tells me everything is not okay.”

In China meanwhile, investors grappled with a different kind of chaos.

Regulators had on Wednesday barred brokers from providing data feeds, citing data security. Turnover in the interbank bond market tumbled 9% on Wednesday and another 16% on Thursday as traders had trouble accessing price information with many turning messaging groups to trade.

LIQUIDITY

Liquidity, the ease of buying and selling an asset, has been challenging this week.

The heads of government bond trading at two European banks said bid-offer spreads, which represent transaction costs for traders, remained wider than usual on Friday.

One said he expected liquidity would remain poor for a while.

Daniel Ivascyn, chief investment officer at PIMCO, said bond market conditions this week were not as bad as during the 2020 COVID crisis, but noted that liquidity in the USD 22 trillion US Treasury market was “challenging”, even relative to the last couple of years.

A measure of implied volatility in the Treasury market meanwhile rose this week to its highest level since 2008.

KEEPING WATCH

The heightened volatility has caught the eye of officials who play a role in ensuring financial markets stability.

A Dutch finance ministry spokesperson told Reuters on Friday the Treasury was keeping a close eye on bond markets, adding it did not expect to make any changes to its issuance plans for the year which are already more flexible than usual.

“Of course, we will continue to closely monitor the developments in the markets. Where necessary we can adapt our plans,” the person said.

On Thursday, Germany’s debt agency said its bond market was functioning well, but auctions could be affected by the volatility, while UK debt agency chief on Wednesday described global markets as “pretty stressed and volatile.”

Analysts noted that bond volatility was exceptionally high not only because of a flight to safe-haven government debt, but also due to a massive repricing of rate-hike expectations.

“Safe-haven bonds on which other assets are priced need stable valuations,” said Nordea’s Gerich. “If liquidity is deteriorating due to wild swings in safe-haven markets, that has implications for the functioning of financial markets and broader economic stability.”

(Reporting by Dhara Ranasinghe in London,Yoruk Bahceli in Amsterdam and Davide Barbuscia in New York, additional reporting by Amanda Cooper in London; Editing by Raissa Kasolowsky)

Gold sparkles in stormy week for markets

March 17 (Reuters) – Gold prices surged more than 2% on Friday as a wave of banking crises shook global markets and put bullion on track for its biggest weekly rise in three years, while bets solidified for a less aggressive Federal Reserve in its fight against inflation.

Spot gold climbed 2.8% to USD 1,971.95 per ounce by 1:47 p.m. ET (1747 GMT), highest since April 2022. Bullion has added about 5.6% this week, the most since March 2020.

US gold futures gained 2.6% to settle at USD 1,973.50.

“Gold is surging on fears that more bad banking news could appear over the weekend and hopes that the Fed will pause its rate hikes next week,” said Tai Wong, an independent metals trader based in New York.

The collapse of Silicon Valley Bank in the US has highlighted banks’ vulnerabilities to sharply higher rates, while a rout in Credit Suisse CSGN.S shares has added to the market turmoil.

“Gold is likely to shine through the chaos as investors adopt a guarded stance,” said Lukman Otunuga, senior research analyst at FXTM.

The dollar and stock markets slid, making bullion a more attractive investment. While it is considered a hedge against economic uncertainties, gold’s opportunity cost rises when interest rates are increased.

The Fed will raise interest rates by 25 basis points on March 22 despite the recent banking sector turmoil, according to a majority of economists polled by Reuters.

Silver was set for the biggest weekly percentage rise among the four precious metals. It advanced 3.1% to USD 22.38 per ounce on Friday.

Platinum firmed 0.1% to USD 974.21, while palladium dropped 2% to USD 1,401.63.

“The sudden tightening in financial conditions won’t help palladium, whose usage is largely industrial though it is technically in the precious complex,” Wong said, adding that platinum “has just been a chronic underperformer and is struggling to shake its reputation”.

(Reporting by Bharat Govind Gautam and Seher Dareen in Bengaluru; Editing by Matthew Lewis and Shounak Dasgupta)

Japanese shares end higher as worries over banking crisis ease

SINGAPORE, March 17 (Reuters) – Japan’s Nikkei share average ended higher on Friday, led by banking and electronics stocks, as easing worries over crisis at US private lender Silicon Valley Bank SIVB.O and Swiss bank Credit Suisse Group CSGN.S propped sentiment.

The Nikkei closed 1.2% higher at 27,333.79, while the broader Topix ended up 1.15% at 1,959.42.

The Nikkei index, however, ended lower for the week, amid a brewing banking crisis that sent bond yields plunging, while market participants sharply lowered expectations of future interest rate hikes in Western economies.

The stronger closings for the day follow a risk rally in the broader Asian markets and Wall Street overnight, which are set to spill over to European equities.

“The rescue package from U.S banks reassured the public’s confidence in the banking system, causing a relief rally,” CMC Markets analyst Tina Teng said.

“The recent event suggests that central banks are most likely to temper their rate hikes, which could be a fundamental change to stock markets.”

Investors are now on awaiting any developments as policy tightening by central banks could persist. The European Central Bank on Thursday raised rates by half a percentage point.

The Japanese yen pulled back from its one-month high to 133.78 per dollar.

Electronics giant Sony Group Corp. and financial institution Mizuho Financial Group Inc 8411.T, up 3.52% and 1.96%, respectively, were among the top gainers on the Nikkei.

Construction firm Taisei Corp., down 8.13%, was the biggest decliner, followed by Nippon Sheet Glass Co Ltd. that fell 2.41%.

Of the 225 Nikkei constituents, 147 rose, 74 fell and four remained unchanged.

The biggest percentage gainers in the Topix were entertainment company Sanrio Co Ltd. and education firm Business Breakthrough Inc., rising 16.73% and 19.46%, respectively.

Social shopping firm Enigmo Inc. and pub chain operator Hub Co Ltd. were the biggest decliners, down 12.58% and 9.39%, respectively.

(Reporting by Yantoultra Ngui; Additional reporting by Ankur Banerjee)

Australian shares end higher as banking crisis worries ease

March 17 (Reuters) – Australian shares closed higher on Friday, led by energy and banking stocks, as risk sentiment improved after authorities moved to rescue distressed banks, easing fears of a banking crisis in major markets.

The S&P/ASX 200 index finished 0.4% higher at 6,994.8, but posted a weekly decline of 2.1%, falling for a sixth straight week.

Contagion fears battered global markets this week after the collapse of US tech-focused lender Silicon Valley Bank, followed by worries that the banking crisis had spread to Europe with Credit Suisse under pressure.

However, a USD 54 billion lifeline from the Swiss National Bank to Credit Suisse and reports that several large banks injected billions of dollars in embattled First Republic Bank, boosted risk appetite.

“The market has obviously bounced off the lows but it’s been a very lifeless rebound as investors want to make sure that they have seen the last of those shockwaves that hit the US banking markets and then hit Europe,” said Tony Sycamore, an analyst at IG Group.

“The market is still skittish, and there’s been an easing of worries certainly over the past 24 hours, but the market wants to see more evidence of that,” Sycamore added.

In Sydney, financials rose 0.9%, with the “Big Four” banks up between 0.2% and 1.7%.

Australian energy stocks led gains on the benchmark, with a 2.3% jump after oil prices rebounded on reports that top producers Saudi Arabia and Russia met to discuss ways to enhance market stability.

Woodside Petroleum climbed 2.5% and Santos gained 2.3%.

Among individual stocks, Australian transit operator Kelsian Group fell more than 11% after the company undertook a discounted placement to fund its USD 325 million acquisition of a US-based bus operator.

Across the Tasman sea, New Zealand’s benchmark S&P/NZX 50 index gained 0.2% to 11,725.62.

(Reporting by Riya Sharma in Bengaluru; editing by Eileen Soreng)

Relief rally on bank rescue lifts riskier currencies; dollar slips

SINGAPORE, March 17 (Reuters) – The US dollar slipped on Friday after authorities and banks moved to ease stress on the financial system, taking the heat off most major currencies that tumbled this week in the wake of bank turmoil.

Action to rescue First Republic Bank in the US on Thursday boosted risk appetite globally on Friday as fears of a global banking crisis eased, making way for surges in the Australian and New Zealand dollars.

The antipodean currencies are traditionally shunned in times of risk aversion.

The Aussie jumped 0.76% to USD 0.6708 in Asia trade on Friday, while the kiwi rose 0.69% to USD 0.6239.

With oversight by authorities, large US banks injected USD 30 billion in deposits into First Republic, which was caught up in a widening crisis triggered by the collapse of two other mid-size US banks over the past week.

The move followed Credit Suisse’s announcement earlier on Thursday that it would borrow up to USD 54 billion from the Swiss National Bank, after the central bank threw a financial lifeline to the embattled Swiss lender.

Credit Suisse had similarly become embroiled in widespread contagion following the implosion of US-based Silicon Valley Bank (SVB), which resulted in a 30% plunge in its shares earlier in the week.

But even as the market rout stoked fears about the health of Europe’s banks, the European Central Bank (ECB) went ahead with a hefty 50-basis-point rate hike at its policy meeting on Thursday.

ECB policymakers sought to reassure investors that euro zone banks were resilient and that if anything, the move to higher rates should bolster their margins.

The euro’s reaction to the decision was fairly muted, though it gained more ground in Asia trade on Friday, rising 0.33% to USD 1.0647.

“The euro zone banking sector remains in reasonably solid shape,” said Wells Fargo international economist Nick Bennenbroek.

“Should market strains ease and volatility recede in the weeks and months ahead, persistent inflation should in our view be enough to elicit further (ECB) tightening.”

Elsewhere, sterling edged 0.4% higher to USD 1.2159, while the Swiss franc rose 0.35%. Earlier in the week, the Swissie had plunged the most against the dollar in a day since 2015.

The Japanese yen remained elevated, as traders still looked to safety assets, still fearing that recent stress unfolding across banks in the US and Europe could be just an early stage of a widespread systemic crisis.

It was last 0.56% higher at 133.01 per dollar, on track to rise more than 1% for the week.

Japan’s Ministry of Finance, Financial Services Agency and Bank of Japan officials will meet on Friday evening to discuss financial markets, the Nikkei newspaper reported, amid fears of the US banking crisis.

“The market gyrations of the past week are not rooted in a banking crisis, in our view, but rather are evidence of financial cracks resulting from the fastest interest rate hike campaigns since the early 1980s,” said analysts at BlackRock Investment Institute.

“Markets have woken up to the damage caused by that approach – a recession foretold – and are starting to price it in.”

The Federal Reserve’s monetary policy meeting next week now moves to centre stage. Some investors are hoping that the Fed could slow down on its aggressive rate-hike campaign in a bid to ease the stress on the financial sector.

“The turmoil in the banking sector is complicating the outlook for Fed policy, but the impact may be more nuanced than the Fed simply reversing course,” said Philip Marey, senior US strategist at Rabobank.

The U.S. dollar index fell 0.31% to 104.07.

(Reporting by Rae Wee; Editing by Bradley Perrett and Christopher Cushing)

Rupee firms as Asian markets power ahead on US, Europe bank rescues

MUMBAI, March 17 (Reuters) – The Indian rupee strengthened against the US dollar on Friday, as risk assets got some relief following bank rescues in the US and Europe, with the local currency holding near a key resistance zone.

The rupee was trading around 82.46 per dollar at 11:15 a.m. IST, compared to its previous close of 82.73.

The currency strengthened past the key 82.50-level and we do expect some more dollar sales as risk appetite has improved, but the 82.40-82.50 zone tends to be an area of resistance, a trader said.

If the currency manages to strengthen past it in a sustainable manner, then further gains are likely, the trader added.

After a week of turmoil in the markets over bank failures in major economies, Asian shares and currencies rebounded on Friday, as the dollar index fell 0.3%.

US stocks set the tone overnight, with the S&P 500 index rallying nearly 2% on news that a large group of banks were infusing cash into First Republic Bank.

The recovery in shares of European lender Credit Suisse, after it received help from Switzerland’s central bank to shore up its liquidity, further helped revive risk appetite.

“Heading into the day, we expect the rupee to trade with an appreciation bias,” HDFC Bank economists wrote in a note.

Besides improved risk sentiment, low crude oil prices could support the currency, they added.

Oil prices have eased drastically as Brent crude futures fell over 8% this week to USD 75.43 per barrel.

Meanwhile, the European Central Bank on Thursday pushed ahead with a 50 basis point hike despite strains in the banking sector.

That, along with robust US labour data has given more confidence to markets that the Federal Reserve would increase rates by 25 bps meeting next week. Some economists earlier reckoned a pause from the Fed was possible.

(Reporting by Anushka Trivedi; Editing by Varun H K)

Oil prices settle down, post big weekly losses on bank fears

March 17 (Reuters) – Oil prices settled lower Friday, reversing early gains of more than USD 1 a barrel as banking sector fears caused both benchmarks to reach their biggest weekly declines in months.

Brent crude futures settled down by USD 1.73, or 2.3%, to USD 72.97 a barrel. US West Texas Intermediate crude fell USD 1.61, or 2.4%, at USD 66.74.

At their session low, both benchmarks were down more than USD 3. Brent fell nearly by 12% in the week, its biggest weekly fall since December. WTI futures fell 13% since Friday’s close, its biggest since last April.

“The underlying fundamentals aren’t as terrible as what is being priced in here, but there is concern the oil is not as safe a place as cash or gold,” said John Kilduff, Partner at Again Capital LLC in New York.

Oil prices tracked equity markets lower, dogged by the banking sector crisis and worries about possible recession.

All three indexes were sharply lower in afternoon trading, with financial stocks down the most among the major sectors of the S&P 500 following the collapse of Silicon Valley Bank (SVB) and Signature Bank and with trouble at Credit Suisse and First Republic Bank.

Prices had recovered some ground after support measures from the European Central Bank and US lenders but dropped again when SVB Financial Group (SIVB) said it had filed for reorganization.

Pressure stemmed from “the continued fragile state of the market”, said Ole Hansen, head of commodity strategy at Saxo Bank.

Analysts still expect constrained global supply to support oil prices in the foreseeable future.

OPEC+ members attributed this week’s price weakness to financial drivers rather than any supply and demand imbalance, adding that they expected the market to stabilize.

WTI’s fall this week to less than USD 70 a barrel for the first time since December 2021 could spur the US government to start refilling its Strategic Petroleum Reserve, boosting demand.

And analysts expect China’s demand recovery to add price support, with US crude exports to China in March heading towards their highest in nearly two and a half years.

Saudi Arabia and Russia in a meeting on Thursday affirmed their commitment to OPEC+’s decision last October to cut production targets by two million barrels per day until the end of 2023.

An OPEC+ monitoring panel is due to meet on Apr. 3.

(Reporting by Laura Sanicola in Washington and Rowena Edwards in London; Additional reporting by Florence Tan and Trixie Yapin Singapore; Editing by David Goodman and David Gregorio)

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