1 big thing: Bond market swings are wildest since '08

2. Catch up quick

3. Down payment down

4. Banking crisis spillover 

5. Bargains in San Francisco

🗓 Folks, it's Fed Day. For the first time in a while, there's uncertainty about the outcome, as our friends at Axios Macro noted. 

Until a pesky banking crisis came along, the vibe was "higher, for longer." Now it's more like, 🤷‍♀️ 🤪. Set your alarms for 2pm ET, when the policy decision is announced. The presser at 2:30 should be spicy.

Today's newsletter is 1,028 words, 4 minutes. 

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✨ Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece. 

Markets

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Stay on top of the latest market trends and economic insights

Axios Markets

1 big thing: Small banks, big problems

High-yield bond spreads show increasing recession jitters

3. The bond market's take on recession risk

4. 🏚 Comparing housing slumps

🌅 Good morning! It's Emily and I'm counting down the days until the Season 4 premiere of Succession on HBO. Thankfully, we did get a little real news about an old media titan yesterday to tide us over till then. 

Today's newsletter is 1,104 words, 4 minutes

1 fun thing: On the occasion of Howard Schultz stepping down as CEO of Starbucks, again, you might want to check out the history of the Frappuccino in Saveur. It didn't start out quite so sugary — nor was it invented by Starbucks.

Editor’s note: The item about the Los Angeles school district has been corrected to show that the strike is by service employees, not teachers.

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Today's newsletter was edited by Kate Marino and copy edited by Lisa Hornung.

1 big thing: An unavoidably messy bank failure

3. The thin $250,000 line

Illustration of a hundred dollar bill with a red line across it being erased by a pencil

4. Savings accounts cling to the past 

🤝 Yeesh, what a wild weekend. The Swiss government raced to pull off the biggest banking deal since the financial crisis: Banking giant UBS is buying its beleaguered rival Credit Suisse, for very little money — as Felix explains below. 

Now all eyes are on the U.S. markets for the reaction.

Today's newsletter is 1,211 words, 5 minutes. Let's go!

1 last FDIC thing: Before the creation of FDIC insurance, banks failed a lot. More than 9,000 banks failed in the four years before deposit insurance went into effect in 1934, according to a paper from the FDIC entitled "A Brief History of Deposit Insurance in the United States." (It's 76 pages.)

The FDIC maximum has been raised only seven times in its 90-year existence, and the last two times were because of financial turmoil. 

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✏️ Markets is edited by Kate Marino and copy edited by Mickey Meece.

1 big thing: Powell says deposits are "safe"

2. Charted: Those comments 

3. Catch up quick

4. Bank crisis could do the Fed's work 

Jay Powell standing in front of a U.S. flag with the stars replaced by percent signs

5. Low-wage workers get big raises

🧳 Welcome back, we're glad you're here! There's lots to unpack from Fed chair Jerome Powell's press conference, plus if you make it to the end we have a big question for you. (Hint: ☕️ + 🫒)

So, let's do this. Today's newsletter is 1,084 words, 4.5 minutes.

☕️ 1 caffeinated thing: This week, Starbucks started selling olive oil coffee drinks. Seriously. It's coffee with a spoonful of EVOO. And it got me thinking. 

Last June, when I revealed my preference for the sugary hazelnut creamer my local gas station provides alongside its free mediocre coffee. Many wrote in and said, "gross, Emily, no." (I am paraphrasing.)

So now, I'm asking: Is olive oil in your coffee better or worse than that creamer? Just reply to this email and share your thoughts. 

Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece.

1 big thing: Emergency lending soars

3. The FDIC's long game

Illustration of a bunch of origami dollar bills folded into  human form holding hands

4. The WFH debate just got more complicated 

☘️ What a week. There's more banking news to consider today. We're also watching events unfold in France, which is mired in protests over President Emmanuel Macron's push to raise the retirement age to 64. 

From an American perspective, this seems...fine. When are you folks going to retire? Email us.

Today's newsletter is 1,203 words, 4.5 minutes

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Markets is edited by Kate Marino and copy edited by Mickey Meece.

National

Note: Average is from a survey of the largest banks in 10 top U.S. markets; Data: Bankrate.com; Chart: Axios Visuals

Deposits were starting to get interesting, even before their sudden flight from Silicon Valley Bank caused the biggest banking panic since 2008-09.

The big picture: The interest rate drought for savers ended in 2022, as the Fed's sharp increase in short-term rates prompted some banks to compete for deposits for the first time in quite a while. 

For depositors with significant sums — such as corporations — there's money to be made by shifting stockpiled cash into accounts that are paying more. 

The intrigue: In textbook economics, depositors would be flocking to the accounts with the highest rates, and maximizing their returns.

But check out the chart above: Even before this month's panic, the national average was still sitting near zero. For many savers, especially those with low dollar amounts in their accounts, inertia is strong.

And since the panic: Money has poured into some of the country's biggest — and stingiest — banks in recent days, as fearful depositors flocked to put their money in banks deemed too big to fail. 

The bottom line: During moments of financial stress, investors — that includes depositors — switch their focus from return on capital, to return of capital, meaning safety trumps all.   

Many Americans are still earning rock-bottom rates on their savings

For many savers, especially those with low dollar amounts in their accounts, inertia is strong.

Banks

Deposits were starting to get interesting, even before <a class="gtmContentClick" data-vars-link-text="their sudden flight" data-vars-click-url="https://www.axios.com/2023/03/11/the-largest-bank-run-in-history" data-vars-item="in_content_link" href="https://www.axios.com/2023/03/11/the-largest-bank-run-in-history" target="_self">their sudden flight</a> from Silicon Valley Bank caused the <a class="gtmContentClick" data-vars-link-text="biggest banking panic" data-vars-click-url="https://www.axios.com/newsletters/axios-markets-fd26e2c5-e09d-4598-b35a-c682ec09fef7.html" data-vars-item="in_content_link" href="https://www.axios.com/newsletters/axios-markets-fd26e2c5-e09d-4598-b35a-c682ec09fef7.html" target="_self">biggest banking panic</a> since 2008-09.The big picture: The interest rate drought for savers ended in 2022, as the Fed&#x27;s sharp increase in short-term rates prompted some banks to compete for deposits for the first time in quite a while.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Data: Organisation for Economic Co-operation and Development; Chart: Axios Visuals

The Fed's rate hiking campaign has brought activity in the U.S. real estate market to a crawl. But prices have barely budged. 

The big picture: In other countries, the impact of higher rates on home prices is way more pronounced, according to a new report published by The Organisation for Economic Co-operation and Development (OECD). 

State of play: Like the U.S. Fed, central banks around the world have fought against a surge of inflation with a flurry of interest rate increases, which have raised mortgage rates — making housing more costly to finance and driving sale prices lower. 

Details: The deepest downturns in prices are in New Zealand and Sweden, two nations that saw surging home prices earlier in the COVID crisis. And the majority of borrowers in both countries have floating rate mortgages that reset with rising interest rates, which means household finances are put under pressure quickly — forcing some owners to sell.  

In contrast, the percentage of variable rates in countries like the Netherlands is much lower. The Netherlands and Denmark also have fairly large systems of subsidized public housing, meaning that people who, in countries like Sweden, might stretch to buy — and then be forced to sell — are more insulated from the rate increase.  

In the U.S., home of the uniquely American 30-year fixed-rate mortgage, the price impact — at least so far — of the rise in rates has been muted. "Golden handcuffs" — mortgages taken out while rates were low — incentivize people to hang onto their home rather than trade up to a new one.  

The bottom line: Countries have different systems, and it's hard to say what's better or worse. More rate-sensitive housing markets like Sweden (where some mortgages reset every three months!) could result in a bit more affordability — and volatility — over time.

In Sweden and New Zealand, rising rates pushed home values down 14%

Housing

The <a class="gtmContentClick" data-vars-link-text="Fed&#x27;s rate hiking campaign" data-vars-click-url="https://www.axios.com/2023/03/03/why-rate-hikes-havent-affected-the-economy-more" data-vars-item="in_content_link" href="https://www.axios.com/2023/03/03/why-rate-hikes-havent-affected-the-economy-more" target="_self">Fed&#x27;s rate hiking campaign</a> has brought activity in the U.S. real estate market to a crawl. But prices have barely budged. The big picture: In other countries, the impact of higher rates on home prices is way more pronounced, according to a new <a class="gtmContentClick" data-vars-link-text="report" data-vars-click-url="https://www.oecd-ilibrary.org/sites/d14d49eb-en/index.html?itemId=/content/publication/d14d49eb-en" data-vars-item="in_content_link" href="https://www.oecd-ilibrary.org/sites/d14d49eb-en/index.html?itemId=/content/publication/d14d49eb-en" target="_blank">report</a> published by The Organisation for Economic Co-operation and Development (OECD).

Depositors should feel secure keeping cash at banks after the government backstopped all deposits — even those exceeding limits on FDIC insurance — at two banks that recently collapsed, Fed chair Jerome Powell said Wednesday.

Driving the news: "These actions demonstrate that all depositors' savings in the banking system are safe," Powell said at the central bank's press conference following its decision to lift short-term interest rates another quarter-percentage point.

Why it matters: Powell's statement — pretty clear-cut for a central banker — on the status of bank deposits comes amid ongoing financial strains at regional banks, which have been losing deposits since bank runs cratered Silicon Valley Bank and Signature Bank earlier this month.

The intrigue: While joint efforts by officials to ensure the safety of deposits — even above $250,000 — were meant to instill confidence, instead it prompted questions about whether other tottering banks would be similarly protected.

Many depositors — especially corporations and wealthy individuals — don't want to wait around and find out.

In a note published on Wednesday, JPMorgan analysts suggest that roughly $500 billion in deposits have fled smaller U.S. banks since the SVB fiasco.

The latest: PacWest Bancorp — a midsized lender based in Los Angeles — disclosed that it had lost roughly 20% of its deposit base since the start of the year, Bloomberg reported, sending its shares down more than 15% Wednesday.

It was forced to beef up its cash holdings by borrowing $1.4 billion from credit juggernaut Apollo Global.

Between the lines: The ongoing nature of the crisis has gradually pushed policymakers toward making the implicit guarantee of all depositors — embedded in the efforts to manage the SVB collapse — far more explicit.

"Let me be clear," Yellen told the American Bankers Association on Tuesday: "The government’s recent actions have demonstrated our resolute commitment to take the necessary steps to ensure that depositors’ savings and the banking system remain safe."

Yes, but: Such statements may not go far enough for markets, which seem intent on pushing for a more clearly spelled out government guarantee on the deposit issue.

Case in point: Stocks — which had been heading for a modest gain on Wednesday after Powell's comments — dropped sharply after Yellen seemed to back away from confirming that a fully explicit guarantee for deposits was being considered.

"This is not something we have looked at, it's not something we're considering," she said during Senate testimony Wednesday afternoon, as Powell held his own press conference.

The bottom line: Regional bank stocks promptly tumbled on Yellen's comments, dragging the overall market lower and underscoring the fact that policymakers haven't yet quashed simmering concerns about the financial system.

 lift short-term interest rates another quarter-percentage point

Fed chief Powell says deposits "are safe"

His comments came after the central bank lifted short-term interest rates another quarter-percentage point.

Fed chair Jerome Powell. Photo by Alex Wong/Getty Images

Federal Reserve

Silicon Valley Bank

Depositors should feel secure keeping cash at banks after the government backstopped all deposits — even those exceeding limits on FDIC insurance — at two banks that recently collapsed, Fed chair Jerome Powell said Wednesday.Driving the news: &quot;These actions demonstrate that all depositors&#x27; savings in the banking system are safe,&quot; Powell said at the central bank&#x27;s press conference following its decision to<a class="gtmContentClick" data-vars-link-text=" lift short-term interest rates another quarter-percentage point" data-vars-click-url="https://www.axios.com/2023/03/22/fed-raises-rates-silicon-valley-bank" data-vars-content-id="ab0817f2-f1e7-431e-a4f7-fd9db9e72965" data-vars-headline="Fed chief Powell says deposits &quot;are safe&quot;" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/03/22/fed-raises-rates-silicon-valley-bank" target="_self"> lift short-term interest rates another quarter-percentage point</a>.

Data: CBRE Econometric Advisors; Moody's; Chart: Axios Visuals

After a lag, the work-from-home revolution is finally starting to show up in the data for office building rental rates. 

State of play: Major markets like San Francisco and Manhattan — where long commute times seem to be driving the durability of the WFH lifestyle — have been hit the hardest. 

On the other hand, markets like Raleigh, Boston and Minneapolis — which have a higher concentration of health services, biotech and life science employment — seem to be faring well. (It's hard to do laboratory research from your home office.) 

What we're watching: Whether the issues in the office market worsen due to balance-sheet stress at regional banks.

Small and midsized banks (those not among the top 25) currently hold 67.2% of all outstanding commercial real estate loans, Axios recently reported.  

Remote work is starting to hit office rents

Not surprisingly, San Francisco landlords are taking the biggest hit.

Real estate

Bond market swings are wildest since '08

The Fed announcement on rates could set off the next big move.

Bond markets

The <a class="gtmContentClick" data-vars-link-text="banking crisis" data-vars-click-url="https://www.axios.com/2023/03/21/yellen-silicon-valley-bank-run-fdic" data-vars-item="in_content_link" href="https://www.axios.com/2023/03/21/yellen-silicon-valley-bank-run-fdic" target="_self">banking crisis</a> of recent weeks has ignited some of the wildest swings in the Treasury market in years. Driving the news: In recent days, the most widely watched gauge of bond market volatility — the ICE BofA MOVE index — <a class="gtmContentClick" data-vars-link-text="surged to the highest level" data-vars-click-url="https://www.washingtonpost.com/business/2023/03/20/most-important-bond-market-needs-fixing-before-it-s-too-late/853f9d84-c73a-11ed-9cc5-a58a4f6d84cd_story.html" data-vars-item="in_content_link" href="https://www.washingtonpost.com/business/2023/03/20/most-important-bond-market-needs-fixing-before-it-s-too-late/853f9d84-c73a-11ed-9cc5-a58a4f6d84cd_story.html" target="_blank">surged to the highest level</a> since the last major U.S. financial crisis broke out in 2008.

Matt Phillips

Stories

Fed chief Powell says deposits "are safe"

Remote work is starting to hit office rents

Bond market swings are wildest since '08

In Sweden and New Zealand, rising rates pushed home values down 14%

Many Americans are still earning rock-bottom rates on their savings

Newsletter editions

💬 "Safe"

🔃 Wildest since '08

🏦 Thinking small

🤔 No limits

💰 Panic at the discount (window)