KUALA LUMPUR, April 21 (Bernama) -- Bursa Malaysia’s benchmark index closed flat to settle at slightly below the 1,500-mark on Monday as investors balanced persistent global uncertainties with signs of underlying domestic resilience, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) inched up 0.07 of-a-point to 1,499.47 compared to Friday’s close of 1,499.40. The benchmark index opened 2.68 points higher at an intraday high of 1,502.08 and hit an intraday low of 1,494.27 during the early afternoon session. In the broader market, decliners outpaced gainers 512 to 308, while 463 counters were unchanged, 1,142 untraded, and 39 others suspended. Turnover dwindled to 1.53 billion units valued at RM1.19 billion against Friday’s 1.69 billion units valued at RM1.24 billion.
Cathie Wood Points To 'Serious Liquidity Issues' As Overnight Borrowing Rate Spreads Widen On Spiking Treasury Yields
Key Highlights:
Liquidity Crisis Warning: Cathie Wood, CEO of Ark Invest, has raised alarms over "serious liquidity issues" in the U.S. banking system, signaled by widening SOFR swap spreads following a sharp rise in U.S. Treasury yields.
SOFR Swap Spread: The Secured Overnight Financing Rate (SOFR) reflects the cost of borrowing cash overnight, and the swap spread is the difference between the fixed rate in a SOFR-based interest rate swap and the yield on a government bond of the same maturity. The recent spike in this spread is a sign of distress in the financial system, particularly in U.S. banks.
Treasury Yields: The 10-year Treasury yield jumped from 3.87% to 4.44%, contributing to a broader sell-off in markets. This spike has led to fears of crumbling foreign demand for Treasuries, particularly from countries like China, which has been a major buyer.
Liquidity and Credit Concerns: The widening SOFR swap spread suggests that U.S. banks may face challenges with liquidity. The crisis could exacerbate the economic slowdown and potentially lead to a recession, with bond markets showing signs of stress.
Cathie Wood's Call for Solutions: Wood advocates for a geopolitical solution via a trade agreement (referred to as the "Mar-a-Lago Accord") and monetary intervention by the Federal Reserve to address the liquidity crisis. She emphasizes that there is "no more time to waste."
Bond Market Volatility: The high-yield corporate bond spread widened to 407 basis points as of April 7, signaling reduced investor confidence. ETFs focused on high-yield corporate bonds and senior loans, such as the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and Invesco Senior Loan ETF (BKLN), have seen sharp declines.
Market Impact: The Nasdaq 100 entered bear market territory, down 23.1% from its previous record, while the S&P 500 and Dow Jones were also significantly lower. The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ) both saw declines.
Inflation and Recession Risks: Experts are concerned about rising yields, inflationary pressures from tariffs, and the potential for a market crash. Economist Peter Schiff warns that without emergency rate cuts and quantitative easing, the U.S. could face a 1987-style stock market crash.
Why It Matters:
The recent spike in Treasury yields and widening SOFR swap spreads indicate serious stress in the financial system, especially among U.S. banks.
With U.S. Treasuries under pressure, foreign demand for U.S. debt could decrease, raising concerns about the economic slowdown.
The Federal Reserve faces a challenging task of balancing inflationary risks with the potential for slower growth and liquidity challenges in the economy.
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