The old sign on the trading floor that proudly boasted we had gone 2 days without a systemic banking flare-up (as of yesterday) has been reset to "0," sort of...  While there's not as much of an issue as something like Silicon Valley's failure, the surge in Deutsche Bank CDS got the market's attention overnight.  We're starting the day at very strong levels.  In situations like this, we need to keep an eye out for position squaring and a shift from European to American trading sentiment around mid-day.

In other words, EU markets delivered rates to very low levels and as EU considerations wane, US markets may push back.  Additionally, if the market is generally long bonds on the week (i.e. betting on lower rates), then end-of-week position squaring could imply a push back toward higher yields.  Of course if we can see this, then traders could speculate about the same thing.  No way to know the future, but just something to keep an eye out for.

Here's a chart of Deutsche Bank CDS.  Higher = more concern:

20230324 open.png

December Fed Funds Futures moved back to their recent lows, with 3.5-3.75% being the target (VERY different from what the Fed foresees).  That discrepancy spells one thing in the weeks ahead: VOLATILITY.