Market stress indicators begin to flash after third U.S. bank folds

March 13, 2023

Investors reeled in their expectations for global central bank rate hikes, and bank stocks tumbled once again. In the money markets, a closely watched indicator of credit risk in the U.S. banking system edged up on Monday, as did other indicators of credit risk in the euro zone. The gap between two-year euro swap rates and two-year German bond yields widened by around 20 basis points to 83 basis points, to the highest since Nov. 11. Graphic: Signs of stress - Germany, two-year bond yields dropped more than 50 basis points, much more than a drop of 37 basis points on swap rates. Back in late 2008, when failed investment bank Lehman Brothers collapsed, this swap rate went as negative as 300 bps.