Unknowns and Uncertainty
Financial markets were volatile last week as investors parsed the risks around bank closures, central banks offered additional protections for depositors, and regulators took a harder look at bank balance sheets. “For much of last year, volatility was elevated, but the risks were somewhat ‘known’ (chiefly inflation and recession)…Now, the introduction of the banking crisis has created a new unknown, which could ultimately mean a sharper increase in volatility (if worse than expected) or a quick reprieve (if fears prove unfounded),” opined a source cited by Nicholas Jasinski of Barron’s. Unknown risks create uncertainty, and you know what they say about markets and uncertainty. Yields on Treasuries dropped sharply as investors sought opportunities they perceived to be safe, reported Lawrence C. Strauss of Barron’s. The yield on the two-year U.S. Treasury dropped from 4.6 percent to 3.8 percent, and the yield on the 30-year U.S. Treasury fell from 3.7 percent to 3.6 percent.