Food for thought: Financial conditions in the US are rapidly tightening

Inflation rates have been a hot topic in the United States, with February seeing a 0.4% rise in inflation and a 6% year-over-year increase. This marked the 8th consecutive month of slowing inflation and the lowest YoY reading since September 2021. These figures were in line with the market’s expectations, and after stripping out food and energy prices, core CPI rose 0.5% for the month, to 5.5% YoY.

The US 2-year yield experienced the biggest single-day drop since 1982, exceeding the fall during the Black Monday crash of 1987. The yield dropped over 100 basis points over the past three sessions, leading to a dramatic unwinding of the deeply inverted 2/10 yield curve. As a result, the rate on the average 30-year mortgage declined to 6.57%, down from above 7% last Wednesday. A further decline in rates could bring homebuyers back into the market.

Silicon Valley Bank has been declared a “threat to the financial system,” and the Federal Deposit Insurance Corp. (FDIC) is preparing to auction off the bank again. Officials noted that at least one institution made a bid for SVB, but none came from the largest US banks.

Finally, financial conditions in the US have tightened rapidly, with Bloomberg’s measure indicating that conditions are now as tight as they were at the S&P’s October lows. This tightening could lead to increased financial pressures on businesses and consumers alike.