Macro ripples from Silicon Valley Bank

Silicon Valley Bank's troubles — and fears that other regional banks could face similar issues — are rippling across Wall Street. That could complicate the Fed's inflation fight, as well as the economic outlook.

• Fears have been spreading that the rapid rise in interest rates over the last year has caused losses on banks' bond portfolios, which could create distress across the banking system.

Why it matters: Losses in the banking sector could throttle credit in the broader economy, if banks become more cautious in their lending and/or face deposit outflows.

State of play: Bond markets are going haywire. As of 11:50 ET Friday morning, the two-year Treasury yielded 4.71%, well below the 5.07% reached on Wednesday.

• That likely reflects, in part, a sense that the jobs report and banking troubles will make the Fed more cautious about rate increases.
• But a move that large probably also involves a more general flight to quality — panicky investors snapping up Treasury securities as a safe haven amid ominous signs in the banking system.

What they're saying: "There are recent developments that concern a few banks that I'm monitoring very carefully. And when banks experience financial losses, it is and should be a matter of concern," Treasury Secretary Janet Yellen said Friday morning while testifying before the House Committee on Ways and Means.

The intrigue: There is an irony to the bond market rally over the last two days. Silicon Valley Bank got in trouble because the market value of its long-dated bonds fell due to Fed rate hikes.

• But now SVB's troubles have triggered a bond market rally; the popular Vanguard Exchange Traded Fund with the ticker BND is up 1.3% Friday alone.
• Call it interest rate ouroboros — the snake eating its own tail.