🍋 Bonds are Back

Yesterday's short-term U.S. government bonds rally was the largest we've seen since the 1980s. But this isn't just causing excitement among traders; it's also causing anxiety about what's coming next.

March 14, 2023

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"The bond market is the most efficient mechanism anywhere in the world for transferring capital from those who have it to those who need it." — Bill Gross

Good Morning! Happy Pi Day to those who celebrate. Investors are still scrambling to make sense of the SVB fallout. Many analysts say the banking failure threw a wrench in the Fed’s inflation fight.

As regulators gear up to auction off the bank, the likes of JPMorgan and PNC are being touted as potential suitors. And HSBC bought SVB’s British arm for a grand total of £1 but will have to shoulder the weight of SVB’s liabilities.

A cruise company, Life at Sea Cruises, offers guests the chance to live on a cruise ship starting at $30k per year. And New York City dropped its $2 billion plan to build an AirTrain to LaGuardia, and will enhance bus service to the airport instead.

Financebuzz’s team of credit card experts has put together a comprehensive list of the top cards that offer extended periods of 0% interest rates. Check out the list here.

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1. Story of the Day: Bonds are Back

Yesterday’s bond rally fueled the biggest 3-day decline in 2-year Treasury yields since 1987.

The yield has fallen ~100 basis points since Wednesday, compared to a 117 basis points decline in 1987 following “Black Monday,” when the stock market crashed 20% for its worst one-day drop.

Treasury yields fall when bond prices rise. Investors are swarming into US government bonds after the collapse of Silicon Valley Bank to avoid getting burned in a financial firestorm.

Investors have been on edge about inflation and record-breaking bond yields all year, but now they're getting nervous about the lack of financial stability and the potential for bank runs.

This sudden change in the market has major implications for the entire economy, as Treasury yields set the benchmark for interest rates and the valuation of financial assets.

Last year the Fed's rate hikes caused yields to shoot up, leading to a stock market correction and eye-popping 7% mortgage rates. Wall Street analysts are split on how much weight to give financial stability concerns when setting rate hikes, but 80% of analysts don’t think we’ll see any more rate hikes this month.

Takeaway: As the old adage goes, "the Fed raises rates until something breaks," and it seems that cracks are starting to show with the failure of two regional banks since Friday. With the Fed likely to slow the pace of rate hikes, we’ll have to wait and see what keeps Wall Street investors up at night going forward.

2. Markets Rundown

For access to Wall Street insider interviews, industry deep-dives, premium research/resources and weekly Knowledge Drop newsletter, check out our Insiders membership.

The S&P and Dow closed lower for 5th straight day despite emergency backstop against SVB.

Movers & Shakers

  • (+) Provention Bio ($PRVB) +260% after Sanofi announced it will acquire the company.

  • (+) Illumina ($ILMN) +17% because billionaire activist Carl Icahn is preparing a proxy fight at the biotech company.

  • (–) First Republic Bank ($FRC) -62% over SVB contagion fear.

Private Dealmaking

  • Pfizer agreed to buy Seagen for $43 billion

  • Qualtrics accepted a $12.5 billion takeover offer from Silver Lake and CPPIB

  • Sanofi will buy Provention Bio for $2.9 billion

  • Shein, a Chinese online retailer, is set to raise $2 billion this month

  • Humane, a cloud service platform for AI, raised $100 million

  • HSBC bought SVB’s UK arm for ÂŁ1 (yes - you read that right)

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3. Top Reads

  • 3 million U.S. households making over 150k are still renting (WSJ)

  • Did the government just bail out SVB and Silvergate? (Vox)

  • What you need to know about the FDIC (Axios)

  • Consumer inflation may have cooled in February but only slightly (CNBC)

  • Venture debt is about to get a lot more expensive (TC)

  • Regulators may still try and find a buyer for SVB (CNBC)

  • Credit Suisse default swaps hit record as SVB failure hits banks (YF)

  • Wall Street pummels regional banks, despite Biden’s assurances (CNN)

  • Why regulators seized Signature Bank (NBC)

  • How the Fed’s rate hike campaign broke things (Axios)

  • What is a bank run? (CNN)

4. Shortform Book of the Day: The Greatness Mindset

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By applying the lessons and strategies found inside The Greatness Mindset, you will be able to design the life of your dreams and turn it into reality.

“You can’t change your life direction if you don’t know where you are right now.”

5. Short Squeez Picks

What Else To Read

If you enjoy Short Squeez, you will surely appreciate Milk Road. It provides a perfect mix of insightful content and humorous commentary.

The crypto market moves at the pace of light and Milk Road provides a concise and straightforward daily summary.

6. Daily Visual: Stock Price for Regional Banks in Free Fall

Source: Axios

7. Daily Acumen

In 1968, an experiment was conducted to investigate the effects of population density and space on social behavior and population growth of mice.

Four pairs of mice were introduced into a metal pen with ample food, water, and nesting material but limited space.

Initially, the population grew rapidly, doubling every 55 days, but growth slowed after 315 days and by day 600, the population declined toward extinction due to social breakdown and altered behavior patterns.

Among the aberrations in behavior were expulsion of young before weaning was complete and aggressive behavior of females.

The experiment concluded that when all available space is taken and all social roles filled, competition and stress can result in a total breakdown of complex social behavior and ultimately lead to the demise of a population.

This lesson can be applied to human situations where scarcity triggers our unconscious mind to react without reasoning, leading to animalistic behavior.

The experiment highlights the importance of ensuring ample space and opportunities for social roles to avoid negative consequences.

The study is a reminder that at our core we are animals and that understanding our primal tendencies can help us create more sustainable societies.

8. Job Board

9. Memes of the Day

 

 

 

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