In the wake of the collapse of Silicon Valley Bank (SVB) and Signature Bank, Morningstar Indexes tell the story of a bruised bank sector and a flight to safety in the bond market.
Between March 8 and March 13:
- The Morningstar US Regional Banks Index declined 22.3%.
- The more diversified Morningstar US Financial Index lost 9.4% on broader concerns of contagion to the US banking system.
- Small Value, the corner of the US stock market most exposed to regional banks, has been the worst performing segment of the Morningstar Style Box.
Treasury securities rallied, by contrast, resuming their role as a safe haven asset. This comes after a year, in 2022, in which equities and fixed income were both battered by the Fed’s aggressive interest rate hikes.
Said Katie Binns, Morningstar Director of Fixed Income & Multi-Asset Indexes: “Bond yields have fallen sharply in recent days, to an order of magnitude typically associated with crisis. Clearly, investors are once again turning to Treasurys for stability in uncertain times.”
- The yield on the Morningstar US Treasury Bond Index has fallen 57 basis points since Thursday’s market close, from 4.44% to 3.87% at close of markets on Monday. Monday’s drop of 31 basis points is the largest single-day drop in yield for the index since March 2009.
- In the last two days, the Morningstar US Treasury Bond Index has returned 2.45% and is up 2.48% month-to-date.
What to Watch
“With today’s mild CPI print and shockwaves still rippling through the markets from the SVB collapse, the Fed will need to carefully re-think its rate hike path in an effort to return stability to markets,” said Binns. “For investors, safe haven assets such as cash and government bonds as part of a broadly diversified portfolio can help navigate the uncertainty that still lies ahead.”
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