Bank selling spreads to Japan as SVB’s collapse shakes global markets

Shares of Japan’s biggest banks fell sharply on Tuesday as global markets reacted to a banking selloff in the United States following the collapse of tech-focused lender Silicon Valley Bank.

Tokyo traders said they were expecting a second day of massive equity support from the Bank of Japan to stave off a deeper break after Japan’s Topix fell more than 3.1 percent in morning trade, led by the country’s biggest lenders.

Shares in MUFG, Mizuho and SMFG fell between 7.5 percent and 8.1 percent in early trade as traders bet that SVB’s collapse could derail a sharp rate hike by the U.S. central bank’s role as Federal Reserve, denting investors’ hopes for for higher bank profits.

“The likelihood of a Fed rate hike appears less likely, JGB yields are falling and the yen is stronger. It’s a huge change in the market environment and that’s why banking stocks are falling,” said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities.

The BoJ revealed on Monday night that it had entered the Tokyo stock market for the first time since December 2022, buying $5.2 billion worth of exchange-traded funds.

The Topix Banks index fell 7.6 percent on Tuesday, marking its worst day in more than three years.

“After seeing the Topix fall below 2 percent on Tuesday, you pretty much knew the BoJ would be buying again. I think we can expect this to be the pattern until this is resolved,” said a stockbroker in Tokyo.

SoftBank, one of the Asian companies analysts believe is most exposed to the broader technology industry blowback triggered by SVB’s collapse, fell 3.4 percent in early trade. Shares in Mizuho, ​​SoftBank’s biggest lender, lost more than 7.5 percent in the morning session.

South Korea’s Kospi fell 1.9 percent. Hong Kong’s Hang Seng index fell 0.9 percent, while China’s CSI 300 fell 0.5 percent.

American treasury rates softened on Tuesday, the yield on the 10-year bond rose by 3 basis points to 3.543 percent, and the yield on the two-year bond rose by 2 basis points to 4.054 percent. Yields vary inversely with price.

The two-year bond yield followed on Monday by 0.62 percentage points, the biggest one-day drop since 1987.

The latest moves come despite efforts in the US and UK to shield markets and depositors from the fallout from SVB’s collapse.

The Federal Reserve announced an emergency lending facility that it said would guarantee all depositors would get their money back on Sunday, while the UK government helped HSBC buy the bank’s local branch.

US President Joe Biden tried to reassure Americans that their funds were safe, saying the country was “doing everything” to avert the crisis.

Despite regulatory interventions, US bank stocks fell on Monday. The KBW Nasdaq Bank Index fell 11.7 percent in the U.S., with regional banks falling the sharpest on worries that smaller lenders could have shakier balance sheets.

First Republic Bank fell 61.8 percent, Western Alliance Bancorp fell 47.1 percent and KeyCorp fell 27.3 percent.