SVB's collapse makes it impossible to say what stocks are worth as bond-market volatility explodes

The fallout from the closure of three U.S. banks in the span of a week is making it near-impossible for analysts to determine a fair valuation for stocks, as volatility in the U.S. government bond market surges to its highest level in nearly 15 years, market strategists say.

If you can’t price bonds, you can’t price stocks At the root of the problem is the ICE BofAML MOVE Index, a gauge of implied volatility in the Treasury market. The index surged to 174 on Tuesday, its highest level since the middle of 2009, according to FactSet data, as yields gyrated wildly.

Of course, the notion that Treasury bonds are considered “risk free” doesn’t mean they’re insulated from losses. But they’re seen as a safer investment, in part because investors can typically recoup their money by holding a bond to maturity. At least one bank — Nomura Holdings 8604 — said it expects the Fed to cut interest rates by 25 basis points while announcing plans to stop shrinking its balance sheet.

Rate cuts back on the table At the start of the year, investors largely expected the Fed would cut interest rates later in 2023, but a spate of hot data on the state of the U.S. economy, the labor market and inflation effectively forced them to change their minds. At one point, market-based expectations saw the terminal rate climbing as high as 5.5% before the end of the year.

Fed funds futures expect the Fed funds rate target will end the year between 4.25% and 4.5% after peaking at between 4.75% and 5% in June. That would suggest that the market only sees one more 25-basis-point hike before the Fed pauses. The CPI data suggested that the worst inflationary wave in more than 40 years continued to slow in February. But some stock-market analysts were troubled by what they saw beneath the surface.

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