US 10-year yields are now down 14 basis points on the day to 3.82% and the US dollar is slumping.

US 10 year yields
US 10 year yields daily

I wrote about this earlier but the moves have extended and it's seeping into FX with the dollar at the lows of the day.

The market is increasingly worried about US regional banks and losses tied to commercial real estate, especially office buildings. It's a problem that's been lurking in the shadows because of the long timelines on office leases but banks may be taking more writedowns this quarter and we've already seen one cut its dividend.

The KRE regional banking index is down 5.5% today and 9% in the past two days.

Ironically, yesterday the FOMC removed the line in the statement that said: "The US banking system is sound and resilient". That was undoubtedly just some housekeeping but it may ultimately prove to be poetic.

I would also highlight that there some good reasons to be buying some downside protection here, or betting on higher volatility.

  1. Nasdaq February seasonals are the weakest of the year
  2. The earnings reactions to MSFT and GOOG weren't exactly inspiring
  3. The Red Sea and war problems are tail risks
  4. The Fed isn't in a rush to cut and we saw yesterday what equities thought of that
  5. Bonds are trying to tell us something
VIX daily chart
VIX daily chart