>> welcome to bloomberg markets. >> let's dive into the markets. stocks higher. regulators rushing to shore up confidence over the weekend. that was not the sentiment in premarket trading. the s&p 500 rising by .8%. the bond market, two days away from the fomc decision. three point 49 on the 10-year yield. what is that pricing in?

we will talk to michael mckee. in a very volatile week, bonds are not very volatile today. taking within the euro it seems. this is coming up of swiss regulators coming into help with ubs and credit suisse merger. people more positive on what the euro-dollar is doing, trading in line with the swiss franc, as well. 1.07 handle their. nymex crude is the story going undetected. 66 handle as goldman sachs says $100 oil is no longer on the table amid the banking crisis. >> goldman had been quite bullish. we will track goes energy and materials stocks. then you have the barbell of some safety with consumer staples outperforming tech today. we wanted to look at the financial sector because all eyes have been on the confidence story, as we continue to watch

many of these moving parts. ubs trading in new york, still up about 5% on the session. we will be talking this hour about the other big development with the fbi d.c. deal with signature -- fdic deal with signature. raleigh speaking, the sentiment for the regionals can be seen in a name like pac west which is outperforming today. lingering uncertainty surrounding first republic. we are reporting about what could be happening behind the scenes. we will continue to track those headlines, as well. kriti: a lot of volatility, even in some of the bank names. it has been one for the history books, but was it justified? pjim's co-chief investment officer weighed in on the topic. >> the markets are hunting. it is looking for any weakness across financials.

whether it is rational or not doesn't really matter. this has a tendency of taking a life on its own. that is where we are at right now. jon: plenty of uncertainty for investors but for central bank strategy as well. a key week for the federal reserve. michael mckee is our international and policy correspondent. what do we know about how this week will unfold with the fed? mike: they will either raise rates or not raise rates. [laughter] beyond that, we don't have anything we can hang our hats on. the fed is watching the markets like we are the banking sector, looking to see if there is a systemic weakness they would exacerbate by raising rates. they would like to raise rates. over the past couple of days, we have seen this recession call it ladder and louder because of the banking issues. they say we will get smaller banks raising deposit rates to keep business, and that will lead to tighter lending

standards. so the flow of credit most slow significantly. credit conditions have not gotten tighter, at least according to most of the financial conditions indexes. the goldman sachs index shows they have gotten a little looser since the time that the svb bank was first reported to be in trouble. chicago fed telling the same story. do we have a problem? we don't know yet. the fed will take all the time they can to make their decision. kriti: michael mckee covering things all for the fed, as the pricing changes minute by minute. let's turn to a senior fellow at the american enterprise institute, where he specializes in systemic risk. experience at the imf, jp morgan. he is a part of the research team involved with policies like basil -- basel iii.

the idea that there were so involved in that fdic backstop, if it is seen as stimulative, there has to be a pain point. what is that pain point in your opinion? >> the fed's action this week could have an impact on the banking system, for sure. raising the rates would then raise the rates on money market mutual funds, the rates they pay, which would then pull deposits out of the banking system. if the weaker banks sustain some sort of run behavior, they basically fund the deposits that leave with loans from the federal reserve under the special lending program, or from the home loan banks. deposits at banks, generally banks pay little interest on them if anything. 0, 25 basis points on transaction balances.

if they have to replace those with borrowing from the fed, that cost them 4.65%. judging by the republic -- first republic bank's recent statements, they are paying 5.09%. at the san francisco home loan bank. raising rates does two things, pulls more deposits out of the banking systems into money market mutual funds, and it also raises the interest rate cost for banks would have to use the special lending facility. jon: the story we have seen from some of the midsized u.s. lenders recently about asking the fbi to ensure deposits for the next two years -- fdic to ensure deposits for the next two years, i believe senator mark warner waited on that today.

how would you feel about that kind of commitment being made? >> how i feel doesn't really matter, it is how the administration,fdic response to this. there is talk on both sides, congressman deluca meyer on the house financial services, who is and community banker, i think he is in favor of it, as well. they will face pressures about blanket guarantees. whether they go to that point or not is anyone's guess. they have done it before. it certainly would not be -- it would be nice if we could get through this bump in the road here without something like that. i suspect if push came to shove, the administration was put -- would push for blanket guarantees. that is a guess on my part. kriti: again, doesn't that have

to catch up to you at some point, that unlimited deposit insurance? what catches up, who pays for it? it cannot be fully funded by the bank term funding program. where does the money come from? >> the deposit insurance fund is funded differently from the special emergency lending facility that the fed announced for banks. basically a special discount window facility. the fdic is supposed to be funded with deposit insurance premiums the banks pay, line of credit with the treasury. it could use the federal funding bank. it's interesting to note that this time the fdic borrowed from the fed. i have a new piece in the hill today which breaks that all down, which is all kind of very startling, very startling occurrence. the fdic never borrowed from the

fed in the past. they always used the insurance fund to fund bailouts, resolutions. even last time, they asked the banks to pay fdic insured premiums ahead of time, advanced premiums to raise the money. they didn't want to go into debt. it is interesting, the fdic actually borrowed $140 billion to fund the two bank bailouts, which is more than the $128 billion in the fdic deposit insurance fund currently. so the comparison of those two numbers, and only two banks going down is not going to instill a lot of confidence in people once they realize, putting those two facts together. jon: speaking of confidence, we heard you reference first republic. last week, we saw a sizable commitment by financial

institutions to put deposits to work with first republic. now some developing reporting, the wall street journal talking about what jamie dimon might be doing right now. in terms of deposits that might be committed, whether or not something turned into some form of capital to try to further provide stability to let's say a regional bank, what is your view on that? paul: this bailout is shades of 1907 when jp morgan bailed out wall street, the bank run in 1907, organized it with other banks. very strange in modern times. according to the first republic filings, sec filings, they are getting paid market rates on this money which is reportedly up to $30 million from this consortium of banks. that does not do their profitability going forward --

does not help them -- it may stem the run. but it puts them in the same position where they are paying more for their funding than they are earning on their assets. it is a very unusual situation. generally, a large bank comes in and bids on a bank, they merge to get the bank out of trouble. apparently that is not happening this time. i guess the reports i read, jp morgan is trying to broker some kind of deal for the bank. this whole consortium of banks coming together and putting in $30 billion, i am sure they talked to the regulators first. if there is no guarantee there is a nod and a wink that it will be safe for them. you don't just put $30 million in a failing bank without some assurances. kriti: a lot to digest, for sure. thank you as always for your

time and insight. coming up, new york community bank is leading the regional bank rally. shares surging on the deal for signature bank. this is bloomberg. ♪ ♪♪ what will you do? will you make something better? create something new? our dell technologies advisors can provide you with the tools and expertise you need to bring out the innovator in you. if you wake up thinking about the market and want to make the right moves fast... get decision tech. for insights on when to buy and sell. and proactive alerts on market events. that's decision tech. only from fidelity. what does it mean to be ever better? its your customers getting what they ordered when they expect it.

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kriti: this is bloomberg markets. it is time for our stock of the hour. surprise, surprise, new york community bank. shares surging after brokering a deal with the fdic to fund a $30 billion in their assets. also upgraded by a few analysts after the deal. to help us unpack all of it is our senior analyst.

the rockstar a bloomberg television over the past few days. i told our manager, you should get a raise. walk us through the deal, what could go wrong? >> first of all, i would frame it as a very lucrative transaction for new york community bank. their shareholders, management team, really helps to shore up the deposit profile, which has been the knock on the bank historically. what could go wrong? new york city -- new york community is going through a transition period where they are already acquiring flagstar, acquiring that prior transaction. add on the employees and the assets and deposits from the signature deal, and they need to shore up their risk management's capabilities as they are now clearing that $100 billion asset threshold, which means pretty

soon they will have to go through the stress testing exercise. that is a pretty big deal for an institution the size of new york community. jon: it's a great point because there is a long process we should remind people of getting to the finish line particularly with that flagstar deal. is this something for consideration if we are going to be talking about more banks coming together rather quickly, versus the deal that new york community bank just did which took a long time to get to the finish line? herman: if you look at it in a different way, with the regulators blessing new york community with this deal to consummate the marriage with ny cv and signature, it is a vote of confidence that new york community has their house in order. i would take it from that front. on the other hand, there is still a lot of banks digesting deals.

we did just go through a fairly rapid merger phase from bank transactions over the past couple years. there are still a few banks digesting deals, so that could or could not complicate things if there are more failed institutions down the road. jon: i appreciate the time as always, herman chan. we want to get to some breaking headlines from the bloomberg team. citizen -- first citizens is said to continue its pursuit of silicon valley bank. they will try to acquire all of the failed svb, according to the people who spoke to bloomberg. breaking headlines from the bloomberg team. it may also participate in the auctions for the two parts of the company, according to one of the people who didn't want to be identified. still hoping to strike a deal for all of silicon valley bank. we will see how this plays out in this quickly changing regional landscape. we are also watching the story

of the road ahead for credit suisse bondholders after all the big concerns that were tied to the ubs deal. we will get insight and analysis coming up after this break with ed devlin. stay with us. this is bloomberg. ♪

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of electrification at the invitation to lexus sales event. is an elegant ev. yeah, with 389 horsepower. ♪♪ it's electric. with an edge. ♪♪ >> for those of us in the bond market, we always knew at1's where the fulcrum in the capital structure. we always wondered, if there ever became an event which would cause those bonds to be built in , how would they be bailed in, how would they be treated? now we know. jon: that $17 billion wipeout

for credit suisse, at1 bondholders. let's get some perspective. ed devlin, former cofounder of the pimco team here. a lot to think about in the fixed income world and now the world is reacting to what we have quickly learned is a massive wipeout for bondholders. what was your reaction to that development? ed: one thing people have to recognize, this at1, this new market for dp subordinated debt, after the old financial crisis, european debt crisis, they were done in an ad hoc way. you cannot generalize that this will happen all across. you have to read each security, understand how they are structured. these particular securities were very strict on their write-downs. others have different triggers. you cannot say that this is bad for everything. kriti: what does that then mean

for incentivizing people to hop into these kinds of bonds? not necessarily for credit suisse or be at dez ubs specifically but other european banks that depend on them? ed: all banks depend on them. this will put a little bit of a taint over this market for some time, as some people may have been a little complacent, did not check alltaint the terms and conditions of the securities they bought. i think that will be going on now. hence, you'll see some pressure in that sector. it will get sorted out. at some point, either new securities will be issued or the market will figure it out. i think it is a bit of a headwind. it was such a nice job of the central banks did when ubs took over credit suisse to provide the circuit breaker with all the main central banks providing lines to swiss national bank. it is unfortunate that this at1 write down, it is not helping

with that circuit breaker to contain rocket panic. jon: more broadly speaking, people in the fixed income world are trying to figure out long bonds and what happens. we go from an interest-rate story to what we've been watching unfold, whether it is with silicon valley bank, or others, and those unrealized losses. what is the day-to-day like in the fixed income world for you right now? ed: there is the bond market and then there is banking. in terms of banking, interest rate risk, what happened at silicon valley bank is the outlier. in my opinion, a massive failure to understand interest-rate risk relative to the capital bank. it will be a debacle where the regulators, managers own it. the u.s. has thousands of small banks. i am sure there are a few that has similar situation but i don't think it is systemic. i don't think that is the big issue. kriti: to your point about duration risk, it feels like a

no-brainer to hedge that risk, front the short end of the curve. can the mass majority of these people not afford it? talk about how expensive it is to hedge right now. ed: there is always a small cost, but a bank should not have any issues with hedging. it should be a tiny percentage of their income statement. i don't think a bank, 100 billion or 200 billion, that that hedging costs should be significant. calculating interest-rate risk is something that bank regulators got their heads around, if not in the 1970's but the 1980's. this is not something that should happen in 2023. jon: we have a fed decision this week, inflation data decision ts week, inflation data in this country tomorrow. we are causally reminded that the challenge for central bankers is a difficult one right

now. what do you think the fed will do this week? ed: the real tension is between financial instability. there is a decent chance, not 100%, we may have put to rest global banking panic out of switzerland. rudy decisive action. i cannot declare victory but looking pretty close. the regional banks, they are 1% gdp or less, their balance sheets. compared to credit suisse, 60%, 70%. let's put this in context. it is all very solvable. what you will see with the fed, they will say let's not panic yet. inflation is an issue. there was a chance a while ago they were flirting with 50 basis points. i think it will be 25, talked about the other tools they have, and kick the can down the road. kriti: crucial context as always. ed devlin, thank you as always. i want to get to some breaking news. ubs is now getting an outlook do

negative by s&p. the stock still in positive territory. the broader market, green on the screen. s&p higher by .7%. more markets coverage ahead. this is bloomberg. ♪

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jon: credit suisse gets its bail and a while banks here in the u.s. are still hanging on. romaine bostick here alongside katie greifeld, kicking you off to the close. katie: you see two year treasury yields continue to kick off, kind of mild compared to what we saw last week. romaine: yeah, kind