U.S. authorities raced over the weekend to put together a package of emergency measures that would snuff out fears about the health of the banking system.
On Monday, it had limited success, at best.
U.S. bonds rallied sharply and stock indexes recovered from their lows, but in the one sector that matters most right now — regional banks — losses piled up at a frantic clip.
Shares of First Republic Bank sank 62%, Western Alliance Bancorp 47% and PacWest Bancorp 21%, tripping multiple trading halts along the way.
The message investors are sending is clear: the emergency measures, which include guaranteeing all depositors' money and providing easier loan terms to banks squeezed for cash, may not be enough to protect banks that even vaguely resemble the three regional institutions that collapsed into government hands in recent days.
"What shakes investors to their core is the continuous aftershocks that come after something like this," said Thomas Thornton, founder of Hedge Fund Telemetry. "You're always on edge. There's a lot of risk left in this market."
The fallout spilled into the credit markets as well. Investment-grade financial debt slumped, while U.S. corporate credit risk soared to a four-month high.
Investors are "rushing for the exits without thinking twice," Adam Crisafulli, founder of New York-based Vital Knowledge, wrote in a note to clients.
All the news in markets wasn't bad on Monday, though. The rally in Treasurys, one of the biggest seen in decades by some measures, brings some much-needed relief to the balance sheets of those banks saddled with the same sort of long-term loans and bonds that the ill-fated Silicon Valley Bank had loaded up on.
This helped push shares of First Republic, PacWest and Western Alliance off their lows of the day.
The frantic demand for Treasuries, which sent yields on some notes plunging more than half a percentage point, was fueled by traders' sudden realization that the Federal Reserve is unlikely to push interest rates much higher and that a recession is now all but inevitable.
