Such a radical shift in monetary policy is bound to cause real pain in the economy, and we look set to experience a credit crunch in coming quarters as banks tighten up their lending activities. So far in 2023, the bank runs here in the US have been limited to regional banks however, fears of contagion in the financial system are currently elevated, with most banks holding underwater assets (treasuries and other commercial paper) in their "held-to-maturity" portfolios.Īfter nearly fifteen years of zero to low-interest rates, the Fed has caught several financial institutions off-guard by hiking the Fed Funds rate to 5% in just about a year or so. In recent weeks, treasury bonds, Apple ( NASDAQ: AAPL), and Microsoft ( NASDAQ: MSFT) have caught a bid as investors flock into "safe-haven" assets amidst a (somewhat contained) banking crisis in the US and Europe. SARINYAPINNGAM/iStock via Getty Images Introduction: The Flight To Safety
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