MyStratWeekly – June 13th 2023

Topic of the week: US banks: health check two months after SVB

• Deposit outflows have hit small banks in March and then larger institutions as savers shift holdings into money market funds;
• Outflows have slowed recently but aggregate bank deposits are down about 5% year-to-date;
• Investors feared a credit crunch would tip the US into recession. Weekly credit data have been rather reassuring;
• Banks have used reciproqual deposit schemes to expand the share of deposits insured by the FDIC; 
• Money market funds have attracted savings by offerring higher returns and banking on high rates at the Fed’s reverse repo facility; 
• The Fed should tweak the RRP to stem risks of bank runs and channel MMF assets back into Treasury bill markets. 

Market review:  Fed: pause and active thinking 

• Fed: rates unchanged but restrictive bias;
• Euro zone: technical recession between Q4 and Q1;
• Risky assets resist the rebound in long rates;
• Credit and high yield benefit from the low level of equity volatility.

Axel Botte podcast

• Review of the week
• Towards a rapid return of Greek debt in quality investment category

Chart of the week

The positioning on the Treasuries market is difficult to read. Sentiment surveys describe a clearly long positioning of investors (at the highest since 2019) which constitutes a bearish signal on the market. Conversely, hedge funds have unprecedented net short positions. Speculative accounts are thus betting on a rise in long rates. These exposures can also represent credit hedges or strategies playing on the narrowing of bases between securities and derivatives, for example.