The latest source of confusion comes out of the United States – not in terms of the stronger than expected economic data noted last month but the collapse/takeover of the Silicon Valley Bank and issues for two others as well. Worries about a broader rout in the banking sector have caused not much sustained weakness in share prices but some definite declines in wholesale interest rates.
These declines in the likes of the US two year Treasury bond yield from 5.1% to just over 4% come about because of expectations that banks will newly restrict their lending in order to reduce reliance on deposits. Their focus on deposits has arisen because the cause of SVB problems was not bad lending but bad management of deposits and poor liquidity policy.