Cars on the road

Bank contagion fears lead to a collapse in year-end US interest rate expectations

March 20, 2023
Market Navigation

The collapse of Silicon Valley Bank (SVB) and fears of contagion have hit global bank stocks, rippling through to wider risk off market sentiment

The collapse of Silicon Valley Bank (SVB) and fears of contagion have hit global bank stocks, rippling through to wider risk off market sentiment. Recent events could well be the first of many unintended consequences of a rapid shift from ultra-accommodative to restrictive financial conditions.

A flight to safety in response to the SVB collapse

Chart 1: Asset class returns since 7th March (SVB news)

Declines in global bank stocks and contagion concerns have rattled equity markets and economically sensitive assets such as oil since the news on SVB broke. This has also led to a flight to perceived safe-haven assets such as gold.

What started with US regional banks rapidly became global

Chart 2: Regional bank sector returns since the SVB news

The collapse of SVB was initially seen as isolated to the US with the US banking sector experiencing the worst of the sell-off in the few days that followed the SVB news. Contagion fears soon led to a sell-off in banks globally, with particular concern over the value of bond portfolios held by many institutions. In recent days the focus has shifted on to European banks, with the spotlight on Credit Suisse which saw its shares plunge by a quarter on the 15th March. As Chart 2 shows Asian banks, which are seen as relatively well capitalised have held up well and only seen modest declines.

Year end 2023 US market interest rate expectations plunge by 170bps

Chart 3: Contagion fears in the banking system have led to a dramatic decline in US year end 2023 rate expectations

The upshot of recent events has been the significant decline in US interest rate expectations. Markets had been ramping up rate expectations on the back of a sequence of strong economic data, pricing in a 50bps hike from the Fed at its March meeting. As the chart 3 shows, following recent events in the banking sector markets now expected the Fed to halt its tightening cycle, and are now in fact forecasting around 75bps of rate cuts by the end of the year to 3.9%.

Ultimately, the sharp fall in rate expectations could be an overreaction if the contagion proves to be limited. However recent events have created yet another conundrum for the Fed. SVB could be the first of many casualties to emerge as restrictive financial conditions start to take their toll.

Source: Wilshire, Refinitiv and Federal Reserve. Data as of March 15, 2023

MM-362171 E0423


Philip Lawlor

Managing Director,  Market Research (Benchmarks)

Important Information

Wilshire is a global financial services firm providing diverse services to various types of investors and intermediaries. Wilshire’s products, services, investment approach and advice may differ between clients and all of Wilshire’s products and services may not be available to all clients. For more information regarding Wilshire’s services, please see Wilshire’s ADV Part 2 available at

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice.

This material contains proprietary information of Wilshire. It may not be disclosed, reproduced, or otherwise distributed, in whole or in part, to any other person or entity without prior written permission from Wilshire.

This material represents the current opinion of Wilshire and is subject to change without notice. Wilshire assumes no duty to update any such opinions. Wilshire believes that the information obtained from third party sources contained herein is reliable, but has not undertaken to verify such information. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error,omission or inaccuracy in such information and for results obtained from its use.

This material may include estimates, projections, assumptions and other "forward-looking statements". Forward-looking statements represent Wilshire's current beliefs and opinions in respect of potentialfuture events. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual events, performance and financial results to differ materially from any projections. Forward-looking statements speak only as of the date on which they are made and are subject to change without notice. Wilshire undertakes no obligation to update or revise any forward-looking statements.

Wilshire Advisors LLC (Wilshire) is an investment advisor registered with the SEC. Wilshire® is a registered service mark. All other trade names, trademarks, and/or service marks are the property of their respective holders.

Copyright © 2023 Wilshire. All rights reserved.

See more

We’re here to help

Wilshire has been applying highly tested theories and approaches to our client solutions since 1981.

Our clients rely on us to improve investment outcomes for a better future.

Contact us