The collision of Credit Suisse’s profit problem and fears about rising global fragility created panic on Wednesday night. How long can regulators keep playing whack-a-mole?
It’s one of those great unwritten rules of life: when someone tells you everything’s fine and there’s no need to worry, you can be pretty sure the opposite is true.on the staggering sell-off in Credit Suisse stock and credit default swaps on Wednesday night is a classic example.
But the Saudi retreat sparked panic, with Credit Suisse’s shares down more than 30 per cent at one stage; the stock was eventually halted down 24.2 per cent.That’s clearly a shocking move, but the really shocking price action was in the credit default swaps that insure investors against Credit Suisse defaulting on its bonds.
Those moves in financials are not surprising. As economist Nouriel Roubini points out, SVB was a relatively small US bank with a relatively small clientele; Credit Suisse is a global giant, with tentacles throughout the global banking sector and indeed the global economy. Even the world’s biggest and most liquid markets are gyrating wildly. The yield on US two-year Treasuries, which plunged wildly on Monday night and then recovered on Tuesday night, saw another session of historic trade, with the yield falling 70 basis points at one stage. That’s simply unheard of.
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