The recent failure of Silicon Valley Bank (SVB) has raised concerns about the safety of the banking system. However, experts agree that this was just a bank run, and not indicative of larger problems in the banking world.
Why Did SVB Fail?
SVB invested in safe, long-term holds, like treasuries. However, with the recent drop in tech stocks, many investors withdrew their money, leaving SVB short on cash. When more and more people tried to withdraw their money from the bank, SVB failed due to a lack of reserves.
What Does This Mean for Mortgages?
Although SVB’s failure may have caused concern among homeowners, experts assure us that it is an isolated incident. Mortgage applications have actually increased, and interest rates are expected to drop. However, the treasury market is volatile, which may impact interest rates.
The Move-In Decks
The Merrill Lynch option volatility estimate, or the Move-In Decks, is a benchmark for how crazy the treasury market is. It has increased by 40 since February, indicating a volatile market. When the treasury market is volatile, interest rates can be impacted.
The Fed and Inflation
The Federal Reserve is meeting this week to discuss inflation. While many expected a 50 basis point increase in rates, experts now predict only a 25 basis point increase. Interest rates will ultimately be based on inflation, so the Fed’s decisions will impact them.
In conclusion, while the SVB incident may be concerning, it is not a sign of larger problems in the banking world. Mortgage applications are up, and interest rates are expected to drop. However, the treasury market is volatile, and the Fed’s decisions will impact interest rates in the long term.