Investors brace for week of turmoil amid banking woes, interest rate hikes: ‘Things break when central banks tighten too much’

FX markets will provide the first read on the demand for safe-haven assets as trading begins in Asia on Monday. Investors will focus on the yen, which has gained in the past four weeks on concerns about the health of a range of lender markets. Comments of Russian President Vladimir Putin on Saturday about positioning Belarus’s tactical nuclear weapons could further polish its appeal. The Australian and New Zealand dollars, both of which are highly sensitive to global growth prospects, will also be in the spotlight.

Volatility dominated global markets again on Friday as Deutsche Bank AG became the latest bank to be pulled audit From investors, and US Treasury Secretary Janet Yellen called for a meeting of the Financial Stability Monitoring Board.

US authorities Taking into account the Whether and how to support First Republic Bank to give it more time to shore up its balance sheet, according to people familiar with the situation. Separately, Valley National Bancorp and First Citizens BancShares Inc. both of them Compete For Silicon Valley Bank after its collapse earlier this month, the Swiss banking regulator He said Credit Suisse Group AG is facing the risk of a possible investigation.

Senior US regulators said on Friday that while some banks are under pressure, the overall financial system is sound.

Banking problems prompted bond traders to dramatically alter monetary policy expectations. They dropped bets that the Fed would raise rates again in May and added to bets that the next shift of officials would be a rate cut as early as June. Traders also trimmed expectations for an interest rate increase by the European Central Bank and the Bank of England.

“Things fall apart when central banks get too tight,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “But you can’t be too negative because all of these things can change very quickly. There’s a risk in two directions right now. Conviction levels maybe a little bit lower.”

Meanwhile, this week’s report may show that a key measure of US inflation remains stubbornly high, reminding investors of the tightrope the central bank must walk to maintain price stability and financial stability.

Against that murky political outlook, a measure of short-term Treasury volatility is approaching the highest level since 2008. Two-year yields touched 3.55% on Friday, the lowest level since September, as traders dumped bets of a rate hike. The rate has fallen more than 100 basis points since it topped 5% in early March for the first time since 2007.

The yen has risen about 4% this month, more than any other major currency, amid volatility, and falling bond yields have reduced interest rate advantage for other economies over Japan. Commodity-linked currencies, including the Australian and New Zealand dollars, underperformed.

Ed Husseini, an interest rate analyst at Columbia Threadneedle Investments, said he expects a rally in bonds as Fed tightening slows the economy, but volatility and velocity underscore the fragility of markets.

“We were set up for this to happen over the next nine months, but it happened in nine days,” he said. “I’m not going to make a complaint, but I’m concerned how quickly it will happen.”