Are those smoldering embers really out?

<p>Kia ora,</p><p>Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news that both bond and equity investors are still buying - despite major repricing underway in the giant bond sector. The S&P500 is up today. The UST 10yr benchmark yield is higher too.</p><p>But as the embers of last week's bank blaze smolder, investors are assessing where to next. Scepticism that the risk to banks is over, is high. But the weekend unveiling of <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20230319a.htm" target="_blank"><strong>a new large central bank facility</strong></a> coordinated by the Fed only brought token demand overnight, which is a good sign.</p><p>The pressure on some American regional banks remains however (<a href="https://www.nytimes.com/2023/03/20/business/first-republic-bank.html" target="_blank"><strong>especially First Republic</strong></a> where a second rescue is underway), and investors wonder about the sense of the Swiss concentrating all their risks on one giant global bank.</p><p>And although most investment managers think the regulatory actions taken so far will be sufficient, their investments in bank bonds are at serious risk after the Credit Suisse bonds were essentially wiped out. There is now a serious repricing of risk in these bonds underway, and questions about the very future of the US$275 bln market in high-yield bank bonds that are used to underpin bank capital requirements.</p><p>However, with the Fed reviewing the situation in its meeting this week, investors seem to now expect a rate hike pause, although +25 bps is still priced in for this Thursday's announcement (NZT). Equity investors aren't shying away from buying.</p><p>But in Hong Kong, there was a very sharp sell-off of bank shares, especially those of HSBC which fell more than -6% yesterday. There were also sharp markdowns of oth