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What a difference a few hours makes. Heading into the trading day Friday, risk assets around the world were down sharply while treasury yields plunged on a flight to safety as bank vigilantes set their sights on Deutsche Bank as their next victim. After taking SVB down two weeks ago and Credit Suisse last week, Deutsche Bank seemed like the next logical target as it almost always find itself as key player during issues in the banking sector. Some may have even wondered why it hadn’t been targeted earlier!
Below is one chart from this week’s Bespoke Report that you may find interesting. The most concerning aspect of the treasury market has been intraday volatility. Traditionally, the two-year Treasury has been one of the least volatile areas of financial markets, but over the last month, the average daily move in the two-year yield has been over 17 basis points (bps), exceeding the peak volatility of the financial crisis to the most volatile trading since 1983. These are not the types of moves you would expect to see in a well-functioning market and provide another example of something that’s ‘broken’ in the aftermath of the Fed’s most aggressive tightening cycle in forty years.
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