Assessing the banking turmoil: Is the market panic an overreaction or justified?
In this episode, we discuss the recent banking turmoil, specifically the failure of SVB and its impact on the market. SVB's sensitivity to interest rate risk and its investment in long-duration bonds led to a significant mark-to-market hole in its balance sheet, causing depositors and investors to withdraw their funds en masse. This panic has contributed to the troubles faced by Credit Suisse, but we believe these failures are one-offs rather than systemic issues. While the market has stabilized, we must closely monitor the situation. In terms of central bank rate hikes, there is a delicate balancing act between banking uncertainty and inflation. Markets are only pricing in one more 25bp move from the Fed, but we believe the ECB and BoE still have room to go.
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