S&P 500 Futures grind higher, yields rebound as talks of deposit guarantee spread amid banking debacle

• Market sentiment remains cautiously optimistic amid mixed headlines about banking crisis, Federal Reserve.
• Bloomberg reports that US Officials discuss ways to secure all bank deposits under FDIC.
• Doubts on the insurance coverage, hawkish Fed bets allowed yields to recover before Japan’s holiday restricted bond moves in Asia.

Market sentiment stays mixed during early Tuesday as the holiday in Japan restricts yields while the stock futures struggle to cheer hopes of deposit guarantee amid the looming banking crisis.

While portraying the mood, the S&P 500 Futures print mild gains around 3,990, after refreshing an eight-day high, whereas the Treasury bond yields remain inactive but keep the previous day’s bounce off multi-day low. That said, the US 10-year and two-year Treasury bond yields bounced off the lowest levels since September 2022 the previous day.

“US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis,” reported Bloomberg. The news quotes anonymous people with knowledge of the talks saying, “Treasury Department staff are reviewing whether federal regulators have enough emergency authority to temporarily insure deposits greater than the current $250,000 cap on most accounts without formal consent from a deeply divided Congress.”

It should be noted that the fears of the FDIC’s inability to cover the US bank deposits, due to the limitations of funds in the reserve, join the doubts surrounding the UBS-Credit Suisse deal to probe the risk-on mood amid a sluggish Asian session.

Analysts at S&P think that it is unlikely that some US bank failures will prevent policymakers from sticking to the task of taming inflation, reported Reuters early Tuesday in Asia. The global rating agency also mentioned that the decision to write off Credit Suisse's AT1 bonds may contribute to a higher cost of capital for banks. On the same line were comments from a Senior Swiss lawmaker who warned on Monday that “the UBS-Credit Suisse merger is an enormous risk.”

That said, the latest read of the CME’s FedWatch tool mentions the probability of witnessing a 0.25% Fed rate hike on Wednesday as near to 75%, up from the last week’s 65%.

It’s worth noting that the sluggish markets allow the US Dollar to lick its wounds near the lowest level in five weeks while the Gold price renews upside momentum after retreating from the Year-To-Date (YTD) high the previous day.

Looking ahead, second-tier housing data from the US could join the risk catalysts to direct short-term market moves. However, major attention will be given to Wednesday’s Federal Open Market Committee (FOMC) Monetary Policy Meeting.

Also read: Forex Today: Currencies respond to improvement in market sentiment, Fed takes center stage