S&P 500 Futures, Treasury bond yields rebound on central bank support, UBS-Credit Suisse deal

After a week full of risk aversion, the market sentiment improves during early Monday as weekend headlines suggest positive developments to ward off the looming fears of liquidity crisis and banking sector fallout. It should, however, be noted that the cautious mood ahead of this week’s top-tier central bank meetings and activity data seems to probe the optimists.

As a result, the S&P 500 Futures print mild gains while reversing the previous day’s pullback from a one-week high around 3,970 whereas the US benchmark Treasury bond yields recover. That said, the US 10-year Treasury bond yields rise six basis points (bps) to 3.49% while the two-year counterpart also adds five bps to print a 3.93% coupon at the latest. It’s worth noting that United States two-year Treasury bond yields marked the biggest weekly loss in three years while the 10-year counterpart dropped the most since early January.

While tracing the major catalysts, the UBS-Credit Suisse deal and the major central banks’ joint efforts to infuse the market liquidity seem to gain major attention.

Sky News reported the news of the UBS-Credit Suisse takeover on Sunday evening while stating that UBS will pay 3 billion Swiss francs (£2.6bn) to acquire Credit Suisse. The news further adds that UBS has agreed to assume up to 5 billion Francs (£4.4bn) in losses, and 100 billion Swiss Francs (£88.5bn) in liquidity assistance will be available to both banks.

On the other hand, the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements.

Additionally favoring the market’s risk-on mood could be comments from an anonymous US Official suggesting no major challenges for the US banks. On the same line is the news quoting the US Federal Deposit Insurance Corporation (FDIC) as it mentioned that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation.

Furthermore, Japan’s readiness for a two trillion worth stimulus package to avoid deflation and the rebound in the UK manufacturing production also allow the traders to lick their wounds after a downbeat weekly performance.

However, the fears ahead of this week’s monetary policy announcements from the Federal Reserve (Fed), the Bank of England (BoE) and the Swiss National Bank (SNB), probe the optimists. Additionally testing the risk-on mood could be the pre-data anxiety ahead of March’s preliminary PMIs.

Looking ahead, the market sentiment may remain fragile as the top-tier data/events are up for publishing. Also challenging the risk profile is the trader’s doubts about the banking sector despite the major policymakers’ efforts.