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“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford

Morning stock market summary

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They’re starting to drop like flies.  The dragnet on global banks has moved on to Deutsche Bank (DB) this morning as the stock trades down over 10% following a sharp decline yesterday as well.  Given the tendency of the bank to always find itself right in the middle of any issue related to banking troubles, it’s almost surprising that it didn’t happen sooner. There only potential catalyst for the decline in Deutsche Bank stock this morning is a report that suggests that the language in other CoCo bond documents gives regulators discretion to write down the value of those bonds.  The fact that central banks worldwide have been happily hiking rates amid global bank runs hasn’t helped the situation.

Credit default swaps (a relatively illiquid market) for Deutsche Bank have surged to a four-year high this morning as investors poke at the bank’s stock and bonds for any evidence of underlying problems.  Defenders have cited the bank’s healthy common equity tier one capital (CET1) ratio of 13.4% and the fact that the ratings agencies had been recently upgrading the bank’s credit rating, but for now, the bank’s reputation is all the probable cause the bank vigilantes need.

The trouble in European markets has made its way over to US markets as bank stocks are all trading lower, crude oil is down sharply, and treasuries are as popular as a Taylor Swift concert ticket. There have been some wild moves across financial markets in activity that has been anything but orderly.  The two-year Treasury market is a perfect example where 20 bps daily moves in yield, while previously uncommon, have become the norm.  Just over two weeks ago, the two-year yield was over 5%. This morning, the yield is at 3.56%.  Who’s running this market? Ticketmaster?

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