Bond distortions showing up after the Silicon Valley Bank collapse. No bailout. Market is scrambling for safe havens: U.S. Bonds and Gold. VIX is pointing towards extreme volatility if bond holders later dump 'bonds' before the Fed's 22nd March meeting.

Distortions in the bond market are already begin to occur, as a banking crisis has been set off with the Silicon Valley Bank (SVB).  Which, in one is to have a sweeping generalist opinion here, could have everything to do with terrible analyst/s advising on that the Federal Reserve will pause or even cut rates in 2023 and 2024.  And woeful advice that a looming recession was on the horizon.  SVB was still lending out on what was rumored to be a $91 billion worth of bonds  on it balance sheet that were facing depreciation via interest rates going upward, thus the bank begin a fire sale from its bond portfolio to cover the growing shortfall.  This is very good example of how inflation/stagflation can affect banks, particular lenders that rely on lending into risk markets, in SVB case, business start ups, in a time when rates are going upward as inflation becomes imbedded into the American economy.  

And it seems that the Federal Reserve has chosen inflation as they number 1 problem for the American economy rather than adding to its balance sheet which is still bloated at $8 Trillion.  So, the problem has been handballed to the Federal Deposit Insurance Corporation (FDIC), which also refused to bailout the lender, rather they have ordered to liquidate the assets of the insolvent bank.

Above Chart shows how a contagion risk is now showing up in the bond markets, with the bar chart being the 10 YR yield, on news of SVB failing beginning 9th March the yield was at 4.00% dropping to 3.70% on the 10th March.    The dysfunction here is that the safe haven appeal of U.S. bonds is an oxymoron, in the sense that the Fed will raise rates at their 22nd March meeting, at this point the market is looking at .25% raise over a .50%.  And it was rising bond rates that took out SVB.  So, bond holders could dump en masse.  Recent bond prices going upwards was probably on a panic, hence the volatility index (VIX), seen as a blue line over the 10 YR yield has spiked to 24.

Also, refer to gold, the ultimate safe haven, that went bid on the news and falling bond yields. 

Info on how inflation can affect banks.  The Savings and Loan crisis of the 1970's and 1980's: https://www.federalreservehistory.org/essays/savings-and-loan-crisis  

___

All markets: chiasmusmagazine.blogspot.com/search/label/markets